While tomorrow in commerce is opaque, it's presently true that microchips are key to winning the commercial future. In a bid to deprive China of this technology, some well-meaning Republicans are playing right into the CCP’s hands.
The GAIN AI Act, sponsored by Sen. Jim Banks (R-Ind.) and Rep. John Moolenaar (R-Mich.), has already passed the Senate as part of the annual defense bill. It would essentially give American companies right of first refusal to buy advanced AI chips from American producers before they are exported.
This may seem a good idea on the surface: a measure to prevent our main adversary from buying up our stock at the expense of American companies. But like all attempts to micromanage the market, the GAIN AI Act will cause harmful distortions while failing on its own terms. As the House considers its own defense bill, they should keep this provision out.
If the U.S. is to get the world building AI on American chips, as President Trump and AI czar David Sacks have challenged us to, restricting our companies’ market access is the opposite of what we should do.
There are two counterproductive effects of export controls, even half-hearted restrictions like GAIN AI. First is the obvious contradiction that dominating the global chip market requires American chipmakers to export their products around the world. We can either prioritize keeping our technology out of China’s hands or we can prioritize dominating the global tech stack. What we cannot do is get the world to buy American chips by prohibiting the world from buying American chips.
On this strategic question, Trump and Sacks are correct while Banks and Moolenaar are wrong. Even if policymakers were to choose the former course, prioritizing keeping our technology out of reach of the CCP, it is impossible to do so for long. Short of keeping U.S. chip producers from selling them at all, they'll eventually reach those whom American politicians would prefer they not.
Throw in the world’s second-largest economy, and you have generated both a profit motive and a perceived strategic imperative for the Chinese to simply make the chips themselves. Not only do export controls fail to prevent adversaries from obtaining technology, they also create an incentive for adversaries to replace U.S. technology altogether.
The second counterproductive effect of export controls is that they limit revenues to American companies otherwise regarded as essential to national security. If American leadership depends on innovation by likes of Nvidia, restricting them from recouping the enormous R&D and production costs they incur building cutting-edge graphics processing units (GPUs) undermines the very goals of the GAIN AI Act. Unless the plan is to fully adopt the Chinese model and nationalize all chipmakers (like the Trump administration has effectively done with Intel), it makes no sense to prevent our successful innovators from selling to a willing market.
And global demand is what has enabled Nvidia, our leading chipmaker, to become a leading innovator. Strange as it seems today, the world’s largest company – now worth $5 trillion – started in the gaming industry developing better GPUs. Global demand encouraged innovations in microchips that are now widely sought after, causing Nvidia’s valuation to explode. They just announced a major ASEAN expansion and now build new GPUs faster than China can stockpile them.
Which is another reason the GAIN AI Act will not succeed on its own terms. A recent panic about Chinese purchases of H20 chips was promptly made obsolete by the release of the new Blackwell GPU. Americans are making more better products faster than China can stockpile them.
On a more basic level, a right of first refusal assumes two things: that there is a domestic shortage that needs to be accommodated and that foreign adversaries are after the restricted product in the first place.
Both assumptions are mistaken. Far from buying up American stockpiles, China is actually banning American chips from its data centers. As Mr. Sacks wrote on X recently, “China is not desperate for our chips. It is producing its own, and intends to compete globally in the semiconductor market. Nvidia still has a substantial lead, according to most analysts, but Huawei is using its networking prowess to remain competitive.” China will not be deprived of chips by GAIN AI – America will be deprived of global market share.
Sen. Banks and Rep. Moolenaar’s intentions are good, but to help American tech dominance they should focus instead on getting more nuclear reactors and natural gas liquefaction plants online through streamlined permitting and environmental reviews. They could look at eliminating barriers to workforce development or apprenticeships, which Sen. Banks recently expressed interest in doing at a committee hearing.
What we should not do is confine our companies to selling only to Americans. It will decimate revenues, while encouraging China to do for itself what we're oddly reluctant to do for it. In short, the GAIN AI Act would be a net loss.
