Are US export controls on tech failing?

International Institute for Strategic Studies | Chris Clague

Huawei revealed its new LogicFolding approach in May 2026, enabling advanced semiconductor manufacturing without relying on ASML's restricted extreme ultraviolet lithography machines. Shortly after, Chinese start-up Z.ai launched an artificial intelligence model competing directly with Anthropic's restricted Fable 5 and Mythos 5 systems. China is rapidly closing the technological gap.

These rapid domestic breakthroughs illustrate the diminishing efficacy of United States export controls under the Bureau of Industry and Security. While Washington expanded the Foreign Direct Product Rule and targeted firms like Tencent and CATL, Beijing countered by channeling massive industrial subsidies into Huawei to bypass critical supply chain chokepoints. Furthermore, strategic compromises—such as Washington suspending the 50% ownership affiliates rule following rare earth export threats—have further blunted policy enforcement. Ultimately, restricting access to American technology has incentivized Chinese self-reliance while depriving US firms of vital commercial revenue required for research and development.

Comment

Washington's aggressive deployment of the Foreign Direct Product Rule against Chinese semiconductor manufacturers highlights a fundamental strategic trade-off in economic statecraft. Restricting Dutch firm ASML from supplying extreme ultraviolet lithography units forced Chinese state planners to consolidate R&D around domestic champions like Huawei. This denial strategy successfully restricted immediate commercial access, but accelerated indigenous workarounds like LogicFolding.

Consequently, Washington's market exclusion policy has degraded Western visibility into state-sponsored dual-use innovation hubs across Shanghai and Shenzhen. Depriving American firms of Chinese commercial revenues simultaneously shrinks corporate research budgets necessary to outpace non-aligned technological ecosystems. That structural loss of market intelligence permanently impairs the Bureau of Industry and Security’s capacity to benchmark foreign advances against Western defense industrial benchmarks.

Strategic Question for Discussion

Which factor poses a greater long-term risk to Western technological superiority — the immediate loss of commercial revenue for US firms, or the Bureau of Industry and Security losing regulatory visibility over Huawei's domestic supply chains?

The available evidence indicates that regulatory opacity presents the far more acute strategic vulnerability for Western planners. While lost commercial revenue hurts immediate R&D budgets, losing intelligence visibility into Huawei's internal supply chains prevents the Bureau of Industry and Security from accurately anticipating breakthrough dual-use capabilities.

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