The AI Power Podcast
Understand everything that's going on in AI Policy and how AI impacts the world. Hosted by Gregory C. Allen.
If you work in AI policy — or you're just fascinated by it — this is the podcast for you. Every week, The AI Power Podcast unpacks the developments that actually mattered: AI regulation, safety, economic policy, US–China competition, semiconductor export controls, and national security. Think of it as drinks after work with the smart friend who tells you what's really going on, and what might actually work, in plain English.
Plus interview episodes — long-form conversations with the policymakers, builders, executives, and analysts shaping artificial intelligence and the global power competition built around it.
The AI Power Podcast
The biggest ever loophole in U.S. AI chip export controls on China? With Chris McGuire
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For the first interview of the AI Power Podcast, Chris McGuire of the Council on Foreign Relations and formerly of the White House National Security Council for a conversation on AI and Semiconductor export controls. A shocking release of updated Commerce Department guidance reveals that it has not been enforcing U.S. export controls on sales of AI chips to international subsidiaries of Chinese companies for more than a year. The Commerce Department has moved quickly to close this loophole but left another one open that is just as big. Chris and Greg unpack what this means and where we go from here.
Welcome to the AI Power Podcast. I am Greg Allen, and today I have the pleasure of hosting Chris McGuire for a conversation on export controls. Chris is a senior fellow for China and Emerging Technologies at the Council on Foreign Relations and a leading expert in US-China AI competition. Before joining CFR, Chris served as a career government official for over a decade, including as the Deputy Senior Director for Technology and National Security at the United States White House National Security Council, where he served from 2022 to 2024. Chris, thanks for joining us.
SPEAKER_01So great to be here, Greg. Good to be here on the launch of the new podcast and uh so excited to be here. Yes, you're our first interview, in fact. Yeah, great. And I'm I'm so excited. I was so excited to see the clip announcement on Bloomberg and everything that you have coming.
SPEAKER_00Very cool. Well, I should doubly thank you, not just for coming on the podcast, but for coming on the podcast and recording today. Uh, when I understand you literally just got off the plane after a week in Taiwan. So you're what, like exactly 12 hours offset time zone wise. So thanks for doing this. Taiwan is basically like the planet Arrakis from Dune is to spice. Taiwan is that to semiconductors. So I assume semiconductors were a big part of your trip. What were you up to over there? Yeah, I mentioned it once or twice.
SPEAKER_01So I was out there. Uh I was invited by the uh Research Institute for Democracy, Society, and Emerging Technology, DSET, in Taiwan, which is a um quasi-government affiliated think tank. Um DSET is doing all sorts of great research on semiconductor supply chains, on AI, all the things that that we're talking about, and that they've they they are kind of a hub of research analysis in Taiwan. They, in kind of conjunction with Computex, which recently ended, were we're putting on a conference to discuss many of these issues, semiconductors, AI, export controls, um, also supply chain resilience generally, drones, etc. Um, you know, Taiwan obviously scanning up a lot of their own kind of drone supply chains at the same time. So that was very productive. They had us meet with senior officials in the government. We met with the vice president, um, officials in Taiwanese National Security Council, export controls, big theme of those conversations, and broadly the need to deepen collaboration between the United States and Taiwan on on all things semiconductors, and obviously the promote side a big bit of this too. Doing more in Arizona, expanding that collaboration that's going well, but you know, more and vaster is obviously the kind of constant message from the United States to to Taiwan. Um so very, very positive trip. It's really astounding to see the the growth um there and the benefit from the eye boom is is really astounding. I mean, they they grew at 14% in the first quarter of this year. Um GDP grew at 14%. Yeah.
SPEAKER_00You know, I'll take it if you're offering.
SPEAKER_01That's pretty good. It's amazing. It's amazing. Uh, and it makes sense, but but the boom is unlike anything else, which is which is great for obviously, you know, that money can go towards all sorts of uh fantastic things from development to defense to semiconductor production. So it's great that Taiwan's benefiting so much, but obviously we really need to work together on on all sides of this, including the export control side that we're going to talk about, because there are still pretty big concerns there. You know, one thing that came up from my trip is that actually sending AI chips to China, there are no criminal penalties for it in Taiwan. It's only an administrative violation, which is a big problem and something I think we need to work on together. Just generally kind of countering smuggling. If it if it's easy to do out of Taiwan, then kind of that's as the hub of all all the chip and server manufacturing, that's the most important thing. But the good news is I think there's a lot of people, you know, in the government and elsewhere that that really do want to work with us more on this and tighten this up and see the national security need for doing so. So hopefully um, you know, more to come on that front.
SPEAKER_00Yeah, so the national security need to do so is a lot of what we're gonna talk about in this conversation. Uh, because the basic US policy has been, since you were in the White House, export controls on AI-related compute to China, basically trying to limit their access to our chips and our chipmaking technologies so that we can preserve and extend an advantage in AI. Well, you were a part of this story in uh the Biden administration from the White House seat. You continued some of that work into the second Trump administration back at your State Department perch. Now you're at CFR where you're continuing to study all these issues. And the reason why I wanted to have you on the podcast on this particular week is that we are fresh from some really big developments in the AI export control story, which is do we still have export controls on AI compute? Is or more accurately, have we had them over the past year? Yes, yes.
SPEAKER_01Not clear, yeah, up to date.
SPEAKER_00Which is is amazing. So let's let's start just by framing the second Trump administration. And I want to read from two Trump administration policy documents and a quote from Donald Trump himself just to frame what the administration says that they want. So let's begin with a document that came out on Donald Trump's first day of his second term as president, January 20th, 2025. This is from the America First Trade Policy, Section 4, Subsection C. Quote: The Secretary of State and the Secretary of Commerce shall assess and make recommendations regarding how to maintain, obtain, and enhance our nation's technological edge and how to identify and eliminate loopholes in existing export controls, especially those that enable the transfer of strategic goods, software, services, and technology to countries, to strategic rivals and their proxies. In addition, they shall assess and make recommendations regarding export control enforcement policies and practices and enforcement mechanisms to incentivize compliance by foreign countries, including appropriate trade and national security measures. So that's what he said on his first day in office with his flagship trade policy. We want these export controls, we want to close loopholes, and we want to get other countries like Taiwan to enforce these better. So then on the AI action plan, this is still the Trump administration's flagship policy document on artificial intelligence from July 2025. In a section called Strengthen AI Compute Export Control Enforcement, the administration said advanced AI compute is essential to the AI era, enabling both economic dynamism and novel military capabilities. Denying our foreign adversaries access to this resource, then, is a matter of both geostrategic competition and national security. Therefore, we should pursue creative approaches to export control enforcement. And then finally, from uh Donald Trump on October 30th, right after he met with Xi Jinping in Busan, South Korea, a reporter asked, and just to clarify, sir, uh, the downgraded Blackwell chips, you would authorize those to be exported? And Trump responds, not the Blackwell. We're not talking about the Blackwell. And then the next day, in an interview with CBS's 60 Minutes, Trump said that the most advanced chips would be reserved for the United States, stating, quote, the most advanced, we will not let anybody have them other than the United States. So, from all of that, you might think that for all the policy volatility that there's been in the second Trump administration, there's at least been a big thread of continuity across the second Trump administration on AI chip export controls, which is that they agree that AI compute export controls are important for national security and geostrategic competition. They agree that tough enforcement and closing loopholes is important, and that they agree that even as some exports are going to be allowed, like the hopper chips that the Trump administration wanted to allow the export of, Trump personally drew the line at Blackwell chips, saying that those are not going to be a part of this deal. So, that for me is the background context to consume this very, very interesting issuance that came out of the Department of Commerce's Bureau of Industry and Security on May 31st, 2026, where they said that they had received questions as to whether or not certain categories of AI uh compute export controls were still in effect. And there was a great June 4th, 2026 story by Mackenzie Hawkins over at Bloomberg News that basically said that perhaps this was not the case and that these controls were not being enforced, which is why the Trump administration felt the need to issue this clarification. So, Chris, I'm looking to you to help us unpack what exactly has happened and what it all means.
SPEAKER_01So this is very regulatorily complicated, but the bottom line here is it seems like there was a loophole in controls that allowed that basically dropped controls and allowed Blackwell chips or any other types of chips to be potentially legally exported to subsidiaries of Chinese companies located in most countries outside of China. Um these entities had been restricted from receiving any chips since 2023. But because of some regulatory um oversights errors, uh which we can talk through, it seems like controls lapsed on them. Uh like we we don't have definitive proof, I think, that that there were shipments to these entities pursuant to the loophole. I will tell you, talking with people in industry and elsewhere, there is pretty strong anecdotal evidence and rumors that shipments were going uh and have been delivered. Um I don't have a you know bill of bill of goods to to share with you to show you that. Um I'm sure there are many people that are digging for that information, but I don't want to oversell. But um but we know that it was legally permissible. So what happened? You have to go back, so October 2023, like I mentioned, was when controls were expanded. Initially they were just on China, Russia, Iran, etc. This the small group of arms embargoed countries. They were expanded in 2023 in two ways. One was to a broader set of countries that pose diversion concerns, generally in Central Asia, other places like that. Uh, and the second was to Chinese headquartered firms anywhere in the world. We knew that this was a a loophole, that um, you know, even though they were restricted to say 10 cent in Beijing, they could be bought by 10 cents subsidiary in Malaysia, and that obviously went against the intent of what we were trying to do, so they were captured and restricted too. Okay, then fast forward to the end of the Biden administration, the Biden administration issued the AI diffusion rule replaced some of those regulations with a broader regulation, which was a worldwide license requirement for all AI chips. Uh, and actually there were some exceptions to this, so it wasn't as if everyone actually had to apply a license for a license in reality, but from a from a regulatory standpoint, there was now a license that was required for every single transaction anywhere in the world.
SPEAKER_00Now then, we should say, just sorry to interrupt, we should say for one thing like the way export controls work is not that they per se make it illegal to ship something to a country. Um, it is not theoretically illegal to sell nuclear missiles to North Korea. It is illegal to sell nuclear missiles to North Korea without a license, right? And what is crystal clear is that we're never going to give you a license to do that sort of thing. So when we say that there is a license requirement, um, that then is going to be reviewed with either a presumption of approval or a presumption of denial or a case-by-case review. And so the diffusion rule basically says there's a license requirement for everywhere, but for some places it's going to be presumption of approval. For some places, it's going to be presumption of denial. And that's them sort of communicating how this is going to be administered, how this is going to be enforced. So that's what the Biden administration left with. That's what the Trump administration inherited. Okay, keep going.
SPEAKER_01Yeah, and actually, technically, there were some exceptions in the Biden rule that said, you know, even though there is this license requirement that sits on top, but then if you meet these further definitions, then actually you don't have to apply for one. So it's the you sort of carved in and then carved back out. But but yes, um, which is actually important for this rule. The other thing I just know per what you said is license requirements are also helpful because they give the government visibility. If there's no license requirement, then the government has no idea what's happening. So for sensitive goods, it it makes sense. You the you would rather something go with a license than have no license requirement at all, because that means that you don't even know what's happening.
SPEAKER_00Like, yeah, you you might get a record that says, like, my company my company shipped electronics to China, but it wouldn't say we shipped such and such kind of chips to such and such customer, and you know, that's right. Yeah.
SPEAKER_01That's right. So the Biden administration put this global license requirement on. Oh, and then when it did that, it also because that was redundant with the previous regulations. So, from a regulatory perspective, just think about this as like the lawyers going through it, uh, they they also eliminated the parts of the previous regulations that applied only to certain countries or only to certain Chinese headquartered companies, uh, and eliminated the AI chip license requirements in those because there was already this broader overarching one now that captured them. So it just would have been they would have been double captured if they still were there. Trump administration, um, four months, five months into the Trump administration in May 2025, said they were not going to enforce the AI diffusion rule, um, which created a bit of confusion as to what they meant. There was a press release where they said they're not going to enforce it. The press release also said they were going to replace it. Uh they did not. So we are over a year later. They still have not replaced it. Um, but there is this statement saying we are not enforcing it. So there were persistent questions for a long time as to what this meant. Initially it was assumed, okay, well, they're gonna replace it soon, so let's just assume that the regs go back to how they were before the diffusion rule. Um, but as time went on, it that became a little bit less of a legally defensible position. And I think um companies started to say, well, we're just gonna look at what's in the regulations and we're gonna take them literally. Now, actually, if you took it completely literally, what the Trump administration said, that we're not enforcing the AI diffusion rule, and you just then look at the regs, there actually would be no controls on AI chips to China, even. Uh so obviously there were certain things that that companies uh decided were still there, but there was no there was no clarity, there was no guidance. And there was obvious that there was this worldwide license requirement, and they were going to enforce it for certain things, but not for certain things, but they never said which one, and they never actually published a document that said what their policy was. Uh so because they had struck the provision in uh or rather, the Biden administration had struck the provision that applied to Chinese headquartered companies when they put this overarching requirement on. Companies eventually started to determine that because there was no longer any legal requirement in US regulations that that that prohibited uh that required a license to ship to Chinese headquartered companies, that they were permitted to do so. Wow. Okay.
SPEAKER_00So let me let me just play back what I think I've heard from you to make sure I understand you correctly. Sorry, I know. So the Biden administration originally put on a no sales to Chinese headquartered companies restriction. They did that in October 2023. Yes. At the end of the Biden administration, in December or January of 2025, when the diffusion rule came out, they got rid of that requirement, not because they wanted to allow selling to Chinese headquartered companies, but because they had this new overarching thing that covered it anyway. So you don't need the you don't need the micro restriction if you have the global restriction. The Trump administration gets rid of the global restriction, arguably for good reasons. I mean, I just I just want to emphasize here you're not immediately a moron if you didn't like the AI diffusion rule. It was controversial even inside the Biden administration.
SPEAKER_01Um people are many elements of it beyond just this. Exactly. Like I actually think that we very clearly should have a global license requirement, but I think you could also say we agree with that, but we didn't like other elements of the rule, and therefore we're gonna do it our own way. That would be totally valid.
SPEAKER_00And what you just said, right? What you just said, which is there are parts of the diffusion rule that were good, there were parts of the diffusion rule that maybe were not good. That was the Trump administration's uh stated uh opinion, right? That's right. They they said they were opposed to the diffusion rule, but they weren't opposed to every single thing in it, and they said they were effectively going to repeal and replace it with something better. They did the repeal and were still waiting for the replace.
SPEAKER_01They did not, but well, the sort of the problem is they actually did not do the repeal because they never actually formally repealed it. So they're not. This was the issue. This is the issue, is that because there was not a repeal and they just said we are not enforcing it, but actually, if you look up on the books today, export control regulations online that are like the official policy and law, technically, are st is still the diffusion rule, what the Trump administration said they're not enforcing, which creates tremendous ambiguity about what is actually controlled and what is not.
SPEAKER_00And this is this is like a big distinction between the United States, which is a rule of law country, and China, right? Which is uh either a rule by law or just a rule by vibes, right? You can be punished in China for doing stuff that the regime doesn't like, even if it wasn't illegal at the time that you were doing it. In the United States, if you want something to be illegal, you have to do it. And when you say you're not going to enforce it, you know, if you take that before a judge, um, you can probably win a case, right? Saying that, like, look, the administration said that they were not going to enforce this, so how can you blame me? So understand that like lawyers who are like, hey, I think we can get away with this, they're not crazy, um, you know, because we are a rule of law country, and the nitty-gritty details really matter, you know, if you want to do something like export controls and you want to do it in a system such as ours or such as most of our allies have.
SPEAKER_01That's right. Wow. And I think once what matters is once is what the industry determines is legal. And I suppose they could make a determination that's incorrect and the government could take them to court and win. Yeah. But there's a real chance that the government would lose. And when we get to the guidance, I'll highlight there's a portion of it that basically acknowledges, I think, that the government thinks that they would lose a case on this uh if they were to bring one, and therefore they won't.
SPEAKER_00Wow. So what we're talking about here is not smuggling. And and smuggling is a is a separate issue. Um, the Department of Justice indicted one of the co-founders of Supermicro back in March. Supermicro is one of the biggest integrators of NVIDIA chips into like servers and data centers and such. And they they were accused of outright smuggling large quantities of chips to China. This is not smuggling. This is a loophole being exploited, which is to say there was no explicit regulatory guidance saying you're not allowed to sell to these uh companies that are Chinese-owned subsidiaries, not geographically located in China, which means that uh at least according to the Department of Commerce itself, they were getting questions from companies asking, can we do this? It seems like this is legal. Is you know, can we do this? So now there's an open question, as you said, as to just how many chips have been shipped under this guidance. And and I want to um come back to that. Do you feel like there's strong evidence one way or another, that it was number one, more than zero, like this this actually was taking place. And then number two, do we have anything to suggest it was a large quantity or a small quantity? You mentioned anecdotes from companies.
SPEAKER_01Yeah, I think from from just talking with people in industry um and others, it everyone knew that this was happening. I think that even if you look at the Bloomberg article um that Mackenzie Hawkins published about everything that happened here, which is a great piece that's it is a very good piece, yeah. Uh it says that NVIDIA actually was aware of this legal interpretation, which is an interesting line, I think. And and actually it's notable that NVIDIA itself was uh for various even more complicated reasons that we don't have to go into. Nvidia itself was restricted from sending to these companies, but the server makers and uh the and the OEM, for instance, super micro, exactly, were not. Um and those are all the companies that actually ship the vast majority of these things to the data centers anyway. Um so the fact that you know you had NVIDIA basically seemingly saying we were aware of this legal uh interpretation, which basically says we were aware this was happening, you know, you you have Chinese companies that that you know, we we know that they're getting blackwells, right? There's been US government leaks uh seemingly intentional about some of the big hyperscalers having blackwell chips, about blackwells also being in China. So yes, this is a good idea.
SPEAKER_00That's what the DOJ subsidiary accusation says. Yeah.
SPEAKER_01Right. And you you're right that that's not smuggling, but also like once it goes to the Chinese subsidiary, it's then obviously extremely easy to smuggle into China. Yeah.
SPEAKER_00Um so I I think that there's Alibaba Singapore, you know, not the most trustworthy person to keep the chips inside uh Singapore. Yeah.
SPEAKER_01Exactly. And you look at the trade flows data, and it's very, very clear that like it just absolutely massive numbers of chips are going to Southeast Asia in particular, to Malaysia, Thailand, and Singapore, way more than there is capacity for the actual data center build-out. So again, why? So how many of those are shipped pursuant to this loophole? How many of these are shipped to Chinese cutouts? But as long as this loophole exists, Chinese firms don't need to use cutouts. They could just order the chips directly. Like, why bother with an additional layer when they can just buy them legally, you know, on the up and up like this? Right. So I I think that there's strong evidence of what's happening as to the magnitude. I think we just really have to wait and see. Um, I have my suspicions that it was probably significant, but I don't want to get out ahead of that because I think that's a very important fact given the kind of explosiveness of this, and we should be precise.
SPEAKER_00But what do you what do you see, Greg? Well, I I I certainly agree with you on the anecdotes. I think there's another data point out there that's really relevant here, which is China refusing the hopper chips, right? Yeah. Um, yeah you know, when you see uh Xi Jinping gloating uh during these trade negotiations with Trump, like ha ha ha, we're gonna you're gonna allow the sale of H200s to my country, but I'm gonna ban the import of H200s in my uh country. You know, one interpretation of that is well, they they don't want the hopper chips because they would rather you know take the hit on compute as a way to promote their domestic semiconductor manufacturing industry, right? That's that's one plausible interpretation of the fact pattern. But this whole anecdote, this whole story um introduces another plausible interpretation of the fact pattern, which is why would I, you know, allow the purchase of all of these hopper chips when I've got massive smuggling of Blackwell chips, as the Supermicro indictment uh indicates, and I've got massive legal purchases of Blackwell chips by Chinese-owned subsidiaries in non-Chinese countries. That is a great reason to not buy hoppers. You get all the benefits of buying American compute, you get all the benefits of making the Americans look bad and you know think twice about the wisdom of export controls in the public narrative. Um, and you it's sort of like you get to have your cake and eat it too, kind of a situation for China. So to me, um, that's the that that is at least a data point that is consistent with the interpretation of this was a lot of chips. This was a lot of chips that went through this.
SPEAKER_01I think that's right. And there's another interesting fact on this, which is if you look at the regulation that Commerce put out in January that actually permits the hopper exports to China, it also specifically says that that only applies to chips going to China and not to chips going to Chinese headquartered firms outside of China. And I think the rationale for that is because logically, okay, you could say what you will about the the policy of sending chips to China. Obviously, I've I think I've said many times it's a bad idea, but but that said, let's just let's just take that as a constant. Selling them to Chinese hyperscalers outside of China is where those companies are going to compete with US firms, and that's where we definitely don't want to have competition. So I can see why the administration said, okay, well, if we're going to allow them anywhere, let's allow them inside China where our firms aren't competing anyway, so we're not both giving China uh you know extra computing power and creating market pressure for our firms. So it's interesting that this was explicitly in the regulation that said we don't want them to go to the overseas subsidiaries because that's double bad for America.
SPEAKER_00Yeah.
SPEAKER_01But then now we have this loophole that's permitting it. Not good.
SPEAKER_00Yeah. So that I should have mentioned that at the upfront when we're talking about like what the Trump administration has expressed itself as wanting. Because, yes, uh, Trump was basically saying somebody is gonna fulfill the computing needs of Chinese companies inside China. It might as well be NVIDIA with the hopper chips. That was sort of the the frame for that policy. But I definitely don't want NVIDIA helping Alibaba or Tencent Cloud or whomever competing against Microsoft, Google, Anthropic, OpenAI in Africa, in Europe, in Asia, etc. So, like that was why, as you said, you know, they didn't allow selling opera chips to China uh to Chinese subsidiaries, even as they allowed selling it to China directly. So all of that makes me think that this is just a straight-up mistake. I mean, the Trump administration didn't want this, it's very inconsistent with their publicly expressed policy preferences. It's it's inconsistent, as you mentioned, with their most recent policy update. So, goodness gracious, what a what a bad egg on face moment. Now, there's a whole other oh, go ahead.
SPEAKER_01It allows these companies to circumvent the tax, right? Because the president imposed. The whole policy. Right, 25% tax, okay, we're gonna sell them to China to at least make some money. Um, now the companies will just use their overseas subsidiaries to buy the better chips without paying the tax, and it gets around it completely. Yeah. It's obviously not consistent with anything that the administration has done so far. Regardless of whether you think what the administration has done is good or bad, this is this is like out of left field.
SPEAKER_00Yeah. Okay, and unfortunately, it's not the worst part of the whole story. For me, the worst part of the whole story is what the current design of the regulations and the current interpretation and enforcement approach of the regulations is for overseas manufacturing of AI chips designed by Chinese companies. So why don't you walk us through where we are at this moment with that?
SPEAKER_01Right. So we should probably say, I don't know if we've gone into detail on what BIS put out, but um we have to be able to do that.
SPEAKER_00If you'd like to start there, be my guest.
SPEAKER_01Yeah, I I think so. And then because that fixes some problems, but not others. The so BIS put out guidance on uh last weekend, which said this uh overseas subsidiaries are captured in in the interpretation in our enforcement. So we said we're enforcing some but not all the diffusion rule, and just saying very clearly in paper, overseas subsidiaries of Chinese headquartered firms are ca they do have a license requirement and therefore they are captured. So what that did was two things. Um it filled this loophole on on chip exports, like you said. Um the other thing that it stopped, which is what I think you you were just alluding to, is because there was no license requirement previously for these companies, they also could, they not only could buy chips, they could also fab them at TSMC. So they don't even need to buy the chips because China can actually just go make their own could go make their own black wells at TSMC. Um and interestingly, I've always got a lot of people.
SPEAKER_00Blackwell equivalents, not blackwells specifically.
SPEAKER_01But like a chip of any level of capability. I mean, take a step back and think about this. Like the there's multiple layers of the controls. There's the controls on equipment that prevent China from manufacturing, and then above that, there's the controls on chips that prevent them from from you know buying things, and then you know, maybe down the line, hopefully there'll be controls on remote access that also prevent them from you know using the cloud, or even models themselves. But actually, beneath all of that is the restrictions on TSMC. Because if if they can make the chips at TSMC, then they don't need to even build up their own production capacity in China. Right? They don't need to then they certainly don't need to buy the chips or rent the chips or anything, right? Like if they can if they can if they have access to the best manufacturing capacity in the world, then nothing else really matters. The the equipment controls don't matter, the chip controls don't matter, nothing. Um so because of this loophole, they not only were allowed to per to buy the chips, but also they could just send the chip designs to TSMC. And Greg, as you have noted many times, um, you know, when China still had access to CSMC, when Huawei still had access to TSMC, Huawei actually made the best AI chip in the world at the time. Yeah uh it was it was better than Nvidia's best chip. And what what is holding them back is not chip design. They're very good China China Chinese companies are very good at designing chips. Um they're not good at manufacturing chips, so you have to hold them back on the manufacturing side, and as a reason because we have, Huawei's actually fallen very far behind NVIDIA because it's very hard for them to manufacture the best chips. So this this was these were the two really big loopholes. This the the the guidance that was issued closed both of them directly for Chinese headquartered subsidiaries. What it did not do was can apply them for basically anyone else. So there were, and there's kind of two elements of the existing rule set before the non-enforcement decision that that would have captured this. So keep in mind, the global license requirement for chips was mostly intended to prevent smuggling and diversion, right? We we were aware that that, okay, maybe the Chinese subsidiary overseas can't buy the chips directly, but they can use a cutout to buy the chips and then ship them to themselves and then back to China, right? So the whole point was like we wanted to prevent that from happening. That can still happen. I think that is kind of core to the global license requirement and something that I think the Trump administration has to think through. Um I hope they resolve this very soon, but at least we're back to like where we were in 2023. But the other element, we the the Biden administration also put in place um what was called the Foundry Due Diligence Rule. That was response to the TSMC SoftGo violation in 2024 when we discovered that TSMC had been making millions of AI chips for Huawei through a company called SoftGo. Yeah. Three million chips for Huawei, uh, which is the by far the biggest export control violation ever.
SPEAKER_00I think I think we I think we we just need to double down on how important this uh failure was uh for the US export control regime, right? Like you're you're seeing data out there about how Huawei is providing a lot of the chips to China's domestic AI market, right? Nvidia is complaining about hey, our market share in China is going down. That reflects how you know the export controls are just making China stronger. No, it reflects how a failure to stop Huawei from accessing Taiwan is making you know Huawei have a viable path around the export controls. So I think I think that is still uh tell me if you disagree, but I think that is still the greatest failure of American export control policy since October 7th, 2022, is failing to catch um that you know TSM St was still making millions of chips for Huawei through this uh this shell company uh based violation. And so anything that continues to give Chinese AI chip designers access to TSMC should be like a DEF CON 5 uh, you know, type alarm um here. And so, you know, what's your sense of like where we are now in terms of Chinese AI chip companies' ability to access TSMC either through like failure to enforce or or vagueness of guidance? Like, where are we right now?
SPEAKER_01Yeah, um so it's it is a big problem still. Uh and so one thing the Biden administration did, in addition to the diffusion rule, there's a different rule called the Foundry Due Diligence Rule. And basically what we said was for any chip any customer for which there is a license requirement, which keep in mind diffusion rule meant every customer globally, um that or every AI chip customer anyway.
SPEAKER_00Yeah.
SPEAKER_01It was it was a little broader, but any chip that the if TSMC is receiving a design from any entity that for which there is a license requirement for an AI chip. Um so basically, basically any company in the world, if TSMC is receiving a design from any company in the world, and it is for a 14 nanometer or more advanced chip, basically anything that could be advanced. The presumption is it is an export-controlled AI chip unless they can prove otherwise. And there's a few different ways they could prove it. It could be a whitelisted company, they could use like a trusted OSAP provider, or it could meet certain you know counts on how many transistors are in it. Um, and if it's below that, it's okay. But these were like very clear technical thresholds. And the reason this was there was to prevent another soft go. Uh, because we were very concerned that there was you know going to be cutouts in other countries that were used to kind of funnel chips back to China. So maybe, yes, like Ten Cent's um subsidiary in Singapore was captured now, but there could be a different company that wasn't, that company would submit the chip design and then just be a pass-through for uh definitely not 10 cent Singapore co.
SPEAKER_00Right?
SPEAKER_01Exactly, exactly. And definitely not Tencent Incorporated right now, could still manufacture a Blackwell level chip at CSMC without restrictions. The actual problem is because of the non-enforcement announcement on the diffusion rule, which was the hook for the foundry rule. So there had to be a license requirement for a chip for the foundry rule to go into effect. But then when the Trump administration said we're not enforcing the license requirement for chips, then that trickled uh down into the foundry rule and meant that actually there was nothing to kick that into effect ever because the hook no longer existed. So therefore it was effectively a non-enforcement of the foundry rule too. I don't think that was the the intent of the Trump. There's no way that was the intent. No, I I genuinely don't think so. But the point here is these things are really complicated and they're hard and they're important. And uh there's a reason that you we write these things down because if you just say like, ah no, we're just not gonna do parts, but it will all work, it won't work. And it didn't work, and it it has it has definitely been failing. We'd have to see exactly like what numbers and uh have been assessed and you know what which companies have complied. Now I will say like we it's not just we always talk about TSMC, but also Samsung. You know, there's a lot of reports of Chinese companies fabbing at Samsung right now. Um probably actually more anecdotally, again, than at TSMC.
SPEAKER_00Um so like it does seem to be a lot of support saying, used to be the outsourced chip manufacturer for uh the uh the Apple iPhone uh chips. Um they're still a massive, they might be the number two uh fab outside of uh TSMC and MediaTech. These are really, really big players in the ecosystem. Or if they're still providing a chip manufacturing capacity to Chinese chip designers, that's that's a massive loophole. Yeah.
SPEAKER_01That's right. That's right. So um I know there's a bunch of pieces of this and it's a little confusing, but basically, where we stand now is the guidance that was issued did close the loophole for direct shipments to Chinese companies. It did close the loophole for uh Chinese companies using their overseas subsidiaries to fab chips at TSMC. It did not close the loophole of cutouts of Chinese companies either receiving the chips directly or fabbing the chips at TSMC. The latter in particular, I think is a unintended oversight. I think the the Trump administration they recognize where there are license requirements, where there are not license requirements, depending who you talk to, because a lot of people would probably say, yeah, we know we need to broaden them, but that's a policy decision that they have to make. I do not think that there is a policy decision to not enforce the foundry due diligence rule, which is what prevents cutout companies all over the world from fabbing chips at TSMC and Samsung and others, but that has been the effect of these policies because of the ambiguous non-enforcement announcement. And that is what industry has decided is their obligations pursuant to these policies, and pursuant to the guidance that the commerce issued, they didn't close the loophole as it relates to the foundry due diligence rule. It only applied to the export. So I think this story is probably not done. Um because there is no we we are not at the end of the year.
SPEAKER_00This had better come out this week, is how I would put it, right? Like they they they need to get this out there as soon as possible. And hopefully, hopefully this week. So let's just talk about like who who hurts from this policy failure. We've talked about American AI model leadership hurting because they don't have the edge over China that they should, as long as China's still getting American chips or they're getting Taiwanese manufacturing capacity for Chinese design chips. So the the Frontier AI labs get hurt, the cloud providers get hurt, right? Because Microsoft Azure or AWS, they they would like to be competing, you know, with weak China, not China bolstered by NVIDIA technology or China bolstered by TSMC uh technology. So they're hurt by this. But I think there's a third person who is hurt by this policy failure, and it's NVIDIA based on you know what you were just saying about the foundry rule. If I'm NVIDIA, uh of course I'm you know upset that I can't sell to China and get that money. Okay, sure, whatever. I would be upset about that. I would be furious to find out that at the same time you're not letting me sell to China, you're letting CambriCon and B-Ren and Alibaba and Tencent and all these people who have their own proprietary AI chip designs, the equivalent of like the Google TPU, right? Like the in-house chip, and they're still getting access to TSMC. You know, if I'm NVIDIA, like you're cutting me off from access to China, but you're not cutting my competitors off from access to TSMC. I would be livid about this. But it seems like, you know, NVIDIA just has this sort of public presence of we're opposed to all export controls, and that that's all we're gonna say on the subject, even when, you know, there are export controls that help them a lot.
SPEAKER_01Yeah, I think that's right. I think the only reason that wouldn't be the case would be if NVIDIA is actually in such a premium position, which they might be, premium position in the market because they are the biggest supplier, and basically if they're just like the number one customer of TSMC, of the HBM companies, etc., that actually they might get squeezed less by this than other AI chip companies, like Broadcom or Microsoft or Amazon or the others who are, you know, might be a little bit further down the priority list. Um I agree with you though that frankly, like anything that enables the competitors of any US AI chip companies is bad for those companies. Um and anything that constrains the supply uh available to those companies is bad for those companies. It might be worse for some companies than for others. Um and it probably is the worst for the companies that are further down the priority list.
SPEAKER_00Um, I mean to me, this is just like this like you you know that you know the the cliche give a man a fish versus teach a man to fish. Yeah. I mean, this is like NVIDIA being prohibited from selling fish to China, but TSMC is allowed to sell fishing poles to China, right? Like it's just the worst policy you could possibly design, or at least in this case, accidentally stumble into. Um so let's let's talk let's talk about how bad it might be. You know, as we said, like everything we're talking about here is stuff that the people who are doing it would, in most cases, prefer that it not get out. So, what do we have to know how big uh this problem is? I think we do have some information that is coming out from um what Chinese AI chip designers and what Chinese cloud companies are telling their investors. So, right now, I'm gonna quote from the May 13th, 2026 Tencent Investor Relations Earning Call. So, Tencent, uh, presumably most folks in the audience are familiar with who Tencent is, but they make WeChat, which is the most important social network in China, and also they're a massive cloud computing uh provider in China, among other things. They're they're a big important tech company in uh China. So here's what one of their executives said in the investor relations earning call quote, we are seeing increased demand both from internal products as well as from external users of our model for our AI-related services. And we had previously guided that we'll be increasing CapEx this year versus last year. And now we're more affirmative, more confident in that guidance. And we and you should expect a substantial increase in CapEx, especially in the second half of this year, as more China-designed ASICs become available to us month by month throughout the year. So this is a 10 cent executive's basically saying that we think more and more Chinese designed ASICs are going to be available to us. Now keep in mind, you know, it takes time once you have a chip design to get it actually being manufactured at TSMC. There's a lot of tough engineering problems that uh TSMC has to solve in terms of like the manufacturability of the chip and actually setting up a process, not to mention, you know, capacities constrained. So more and more of this capacity coming uh, you know, online is consistent with an interpretation of this loophole was being uh expanded. Exercised and more and more of it is becoming available. Now, here's a second quote from a different Chinese executive at Tencent. Quote And in terms of your question about the various bottlenecks between GPU, CPU, networking, and so forth, to recap, that the reason why there's been a GPU bottleneck that's been much more pronounced in China than elsewhere is a combination of policy restrictions on certain foreign-designed GPUs being brought into China, and then the China-designed GPUs facing limited fab capacity within China. And as a result, the country has been really short of GPU or ASIC capacity. And that's now being addressed because the China-designed ASICs are seeing more supply from fabs within China as well as more supply from fabs in neighboring countries. But by contrast, we haven't faced those sort of artificial additional constraints on CPU or networking chips. We've been a big buyer of CPU and networking chips for many years before GPUs became such a big presence in data centers. We have very long-term relationships with the companies that supply the CPUs and supply the networking chips. That's the most explicit acknowledgement I've ever heard from a Chinese executive of the export controls caused our GPU shortage, caused our AI compute constraint problems. And he specifically says, like, we didn't have them on CPUs, we don't have a shortage, it's worse in China than it is anywhere else in the world. And it's explicitly because of the export controls on GPUs.
SPEAKER_01But oh my god. That's a long quote, but maybe you should make. Can you make the title of this show, that whole quote? Because it's it's it's perfect. I and I don't want to change any of it. It's it's it's it's the best, like you just said, it's the best like enunciation of everything that we've been saying. Yes. Uh for for it's amazing that they said it publicly, but yes, there's nothing else to say. That's everything.
SPEAKER_00Yeah, and and it's it's it's truly amazing. So here's the thing like this guy is saying, for all the failures, and there have been a lot, for all the failures in the implementation of this export control strategy on AI compute, it still had a big impact, right? He's complaining about the big impact that it's had. But he's also saying that he expects that impact to lessen because of chip manufacturing capacity that is available in other countries. As we've suggested in this podcast, very plausibly those other countries could be South Korea and Taiwan. If that is the case, that is a loophole that the Trump administration needs to close immediately.
SPEAKER_01Yeah. And the regs are on the books to do it. That's the frustrating thing. Like, they don't even have to pass anything new. They can just say we're enforcing this whole regulation. That by the way, we've kept on the books. And actually, there's never been a statement that's saying they're not enforcing the foundry due diligence rule because I don't think that their intent is to. They just need to make sure that like that that how all these fit together is actually how they intend to. Um look, this stuff has not been treated seriously enough. That's the bottom line here. Like, this this stuff has been treated like a secondary policy that's kind of a sideshow, that we can manage with like a bunch of like private letters, and we don't really have to have like thinking about this seriously. We don't need to have like technical experts in the government that do this. Um, you know, the president can just say no blackwells, it'll happen, and like that actually isn't sufficient at all. Like it's not even sufficient to achieving your no blackwell goal. And look, the way I think about this is like the Biden administration, you can you can you can critique the approach or you could be supportive of the approach, but like it purposefully took a relatively targeted approach, and it it it definitely expanded over time as you know the Chinese tried to circumvent things and and also AI got more important. But still, like the the Biden administration did not say no semiconductor manufacturing equipment to China, period. It did not say no semiconductors to China, it did not say no AI chips to anywhere in the world, period, at all. Like on all of these things, it was it was a relatively targeted approach. But like to take a targeted approach, you need to constantly maintain and update the regulations. If you want to have a regulatory approach that you never have to update and it's just a fire and forget and it's all good, then just ban everything. Because it's the only way that works. And if you don't want to ban everything, then you need to actually be constantly smart about this. And you need to be looking at this and making sure that it's working. And like look, if the Trump administration doesn't want to do all the work to actually make sure that you know it's achieving its intended policy effects, then it should just ban everything. Or it should just give up export controls entirely.
SPEAKER_00But this middle this middle road doesn't work at all. I mean that that's a great point, right? And and the Trump administration uh has chosen a middle road, right? That is what it means when you say no blackwells, yes, hoppers, right? You're choosing the middle road. And I think what you've said very eloquently is the middle road is not a simple road. It's not an easy road. There is a million nitty-gritty, legalistic, bureaucratic implementation type challenges that you will face. And if you don't make sure that all of that goes well, then you get none of the benefits of your middle road approach and all of the consequences, all the bad things of your middle road approach. Uh very sad. Okay, we gotta we gotta wrap this up, and I wanna I wanna end with what should we do now? What should this administration do now? And what are even the options, right, available to it? So uh what do you think, Chris? What what can be done, what should be done?
SPEAKER_01Yeah, I mean So let me say one thing before I say what can be done done is that we have to keep in mind that these things have delayed effects. Yeah. And that also means that we're probably going to suffer the ramifications of this for some time. Um just like I think we are probably I think the the SoftGo violation probably delayed the impact of the export controls by a full two years. Um and I think you see this generally in in like data on CapEx spending and all sorts of other stuff that that um you know because there was this big loophole that allowed China to get a bunch of chips that when we thought they couldn't, uh we didn't start seeing as much effect until until a couple years later.
SPEAKER_00I think there's one silver lining, there's one silver lining of the the SoftGo violation, which is um my understanding is that they were still making ascend 910 B's and C's and those chips suck. So like thank God, right? That like it wasn't like once that once you know, once Chinese chip designers have like an awesome, you know, three nanometer chip design and you give them unrestricted access to TSMC, that's like apocalyptically bad. It happens to be the case, you know, that during this period where they had a window of access to TSMC was also a period of time when the chip that they had ready to be manufactured was a pretty lousy chip. But like, oh my gosh, you know, if you leave that door open, it's gonna be a catastrophe.
SPEAKER_01Yeah, that's right. And actually, most of the analyses, including my own analyses of like China versus US compute, actually don't control for the the quality of the chip just because it's a little too hard and and we haven't actually done a lot of independent assessment of them.
SPEAKER_00When you run the numbers, and by the way, the numbers show that like America has like, I think I think a recent Chinese uh tech executive said it was somewhere between a 10x and a hundred X compute edge. Yeah, I had 50 to 100x, yeah. Yeah, and and that's just stacking flops on top of each other as though they're apples to apples, and they are not apples to apples.
SPEAKER_01That's taking the Chinese specs at face value. Exactly.
SPEAKER_00Yeah.
SPEAKER_01Um, that's right. So anyway, look, so the point here is like we we should be aware that there there could be ramifications for some time. But that said, look, this stuff is still all scaling exponentially, so this will still bite. It just might bite a little later. What should we do? To a degree, it's the same stuff as we as we've been saying for a long time. You have to cut down on smuggling and and diversion to Chinese entities and into China, you have to cut down on remote access, and you obviously have to cut down on access to TSMC. And then we should stop selling chips to China too, but put that aside. Like, if you do those things, they are still going to be massively constrained. Like, in some ways, what we're saying is like, even this, like, they're still we're still eight months ahead. We're still, you know, the Chinese companies are still saying they have all this compute deficit, etc., even despite these huge loopholes that are allowing them to directly buy Blackwells. But we, you know, there's so I think if we if you you impose the global license requirement, you could debate what else you want to do and how to exempt stuff and uh on the diffusion rule, etc. But you have a global license requirement, and probably one that prioritizes hyperscalers. Like, I don't think that you need to have a global license requirement for hyperscalers. You could just have a notification requirement, basically be like, look, the trusted US hyperscalers that we all know and we want to support their business around the world, like they don't need to apply for a license, they can just go build. They should just tell us what you're doing, but like go ahead. And then everyone else come in for a license. So, like, you do something like that, you're gonna really cut down on the diversion. That would also kick the FDD rule completely into effect very clearly, and make sure that TSMC and Samsung and others can't make AI chips for China, and then you also are funneling as much compute as possible into those companies, and then you tell them, like, you can't provide remote access, and I generally trust them to follow it. Like, that is the the order of operations that I think has always been the way to actually constraining China's compute, and I think it would work, and then couple it with obviously tighter controls on SME to make sure that they can't build. Um, so I think that's still viable. I think that's still the strategy. In in the very short term, they commerce needs to issue guidance that says uh the FDD rule is in effect, and Chinese companies can't fab at TSMC or Samsung. Uh, and then they need to issue a rule that expands the license request that makes clear actually, first and foremost, makes clear what US export control policy is. Yeah. Because right now the regulations actually don't say what policy is, they say what policy was. The Trump administration has said we're not enforcing that, but what are they actually enforcing? Like, let's write it down for once. And then they probably want to take that, write that down, make it clear, and then also make it a little bit broader and expanding license requirements to hit, at the very least, it has to hit Southeast Asia, like Malaysia, Singapore, Thailand. Like, we know those are just unbelievable hubs of compute. Uh, my personal opinion is it should probably apply globally. I mean, I I look, I was in Taiwan and I'm I came away fairly concerned about smuggling. Um, and obviously Taiwan are great partners and we should be working closely with them, but I think this is such a significant problem that we probably just want to know where all these chips are going, unless they're going to a trusted US company. Um, but you do that, it would, it would, it would really tighten things up. It's also simpler. Simpler is good, it's easier to implement. Um, maybe there's some back-end implementation that's harder, but at least it's clear what you are and are not controlling. Um, and and at least we'd have a clear policy. But look, last thing I'll say is this the the Trump administration really needs to take this seriously as a matter of AI policy. Because I think they really are re-evaluating a lot of elements of their AI policy right now in ways that are, I think, are commendable and good. And I think that mythos has changed the conversation. I think that you know, Secretary Bessant and Chief Staff Wiles seem like they're they're really thinking hard about what they want the administration's AI policy to be. I think the recent executive order uh was a very clear shift, and I think is something that is a step very much in the right direction. Um, but export controls, which is a key part of it, because this is a question of who are we going to give AI policy to, is still really stuck in the mud. Um there's some elements of export controls that are de facto working. Like mythos as a model is actually de facto export controlled, right? Secretary Bessant is deciding which Japanese banks get access to mythos. That's effectively an export control.
SPEAKER_00But that's that's that's not export controls in the legal sense, that's export controls in the enthropic volunteering. Like that's like anthropic saying we don't feel comfortable making this choice, please you make this choice for us.
SPEAKER_01Exactly. So it's de facto controlled, and they're just working cooperatively with the company, but like not legally. But we do need to impose legal controls because there's many instances where the companies are not working cooperatively with the government. And I so I think I think this is they just there needs to be someone who is put in charge of this, right? Who is the person who is in charge of technology protection and and protecting America's AI advantage and our computing advantage and export controls, and like that that you know, we had those people in the White House before, they're not there anymore. It you could be there, it could be at commerce, it could be someone on Secretary Besson staff. I don't really care. But like there needs to be someone who's in charge of this as a strategy because otherwise, what you get is regulatory chaos that actually undermines the administration's own policy objectives, and that's what we're seeing now, and that doesn't serve anyone's interests except for the companies who benefit from this when uh you know, uh with the government not even knowing.
SPEAKER_00And that's a bad outcome. Yeah. And and and the companies that benefit the most are not like NVIDIA, right? Like this is this is this is not a good story for NVIDIA. This is not a happy story for NVIDIA, uh, everything that we've talked about. It's not like, oh great, we got to sell more chips than we otherwise would have sold. This is a happy story for like companies that are not American, that are happily flouting the law and are making money from China for other people. This is worse than eliminating the export controls in some ways, right? Like just because of who benefits, right? At least if you got rid of all the export controls, you know, Nvidia would make some money, you know, like applied materials would make some money. In this case, you know, you've got like these corrupt executives at Supermicro who are making a lot of money. It's like not the story you want uh to be happening.
SPEAKER_01Um America would buy all these chips, all the ones that are getting diverted to Chinese companies or sold to Chinese companies, shouldn't say diverted if it's legal.
SPEAKER_00Yeah.
SPEAKER_01American companies would happily buy those chips, or if not, that's the point.
SPEAKER_00I mean, for every chip that TSMC can make for NVIDIA, there is a line down the block and around the corner. So it's not as though the sales disappear, they just go to a different customer. Okay, you did a great rundown of all the nuts and bolts stuff that the government um should do. I think I would just add a couple things on the public messaging and the communications side of the story. Where are the congressional hearings that are bringing in executives? Like, I've testified before Congress on this topic. It has been my honor to do so. But like, I'm gonna tell you, you know, everything freely. What we really need in this story is like subpoenas of people who would rather not tell uh some of these details, but do know critical information that lawmakers need to know, that the executive branch needs to know, um, etc. And the second uh thing I think is it really interesting here is the Trump administration, I think to its credit, has recognized when America has been too gentle to its allies, to both America's detriment and to the allies' detriment, right? But if you're gonna, you know, smack an ally upside the head and say, no, you can't um have a massive trading relationship with Russia, you know, that is gonna provide them critical subcomponents that where they're gonna build weapons that are gonna be used to destroy you, bring the AI compute part of that into that story. Trump, if if this is as bad as we think it is, right, get mad at Taiwan. If this is as bad as we think it is, you know, get mad at these other people. Talk to them about how like you should not be willing to like destroy an ally's economy because they're not buying enough of your soybeans, right? That's a bad use of pressure on your allies. But saying, like, I cannot let you sell uh this critical technology to a country that is threatening you profoundly and existentially, that's a good excuse to put pressure on allies. And if Trump is willing to, you know, use those tools in that toolbox, the mean tools in the mean toolbox, this is a much better use case for them than some of the stuff that they've been willing to be mean over, I would say.
SPEAKER_01Yeah, I that's a very good point. And uh a a couple uh other notes on that last one. The first is it's not as if we don't have tools to control this ourselves. Like we are frustrated with allies, but the most frustrating thing of all this is we could just put controls on these things ourselves. We could put you know license requirements on chip exports, but also in-country transfers, etc., inside allied countries and partner countries, just to make clear, like, sorry, it actually doesn't really matter what your legislation or policy is, everything is is now required controlled under US law. That would make a huge difference. Um, on the equipment side, we could say anything with US technology is controlled, which would def which would control allied equipment. They might not like that, but we can do it. So that's helpful. Um, so like it's not like we don't have options here, right? We actually have the ability to do this, even sans allies, and we're not.
SPEAKER_00Yeah, that's another way of being tough on our allies, is basically saying, okay, we're extending our legal jurisdiction on this topic. Yeah.
SPEAKER_01We have the leverage here. And the second thing is actually that pressure on allies can be helpful sometimes, even to them. Obviously, allies have complicated debates on this because sometimes there are issues of sovereignty and they want to, you know, they don't want to be seen as as you know, being forced by the United States to do something. But there are other times when allies would tell us, like, look, we we're with you on the national security threat. We get this. If we have to pick between you just controlling it for us or us doing it ourselves, we'd rather you, the United States, put the control in for us, because then we don't have to worry about a blowback from China or anything else. And we can just say, sorry, that it wasn't our call, it was them, and it's just a lot easier for us politically. And we would have those conversations with allies and we'd say, okay, that that makes sense, we'll do it. And so there it's not as if every time this is actually something allies won't want. Sometimes they actually want the cover of America doing something for them that protects their national security uh in ways that politically I think would be would be hard to get through. So it's this is it, this is a complicated issue that that honestly I think there are ally governments that frequently see um they're more with us than sometimes they indicate in their regulatory policy.
SPEAKER_00Yeah. And and there's one final thing I want to mention on like how it's an ally's best interest as well. You know, when um when a company like ASML, uh, which you know makes the the most important piece of chipmaking equipment in the world and is a Dutch company, when they sell to China, they're destroying their own future addressable market. In 10 years and 15 years, even if ASML machines are still better than Chinese machines, Xi Jinping is just gonna force Chinese companies to adopt the local ecosystem once they meet some minimum viability threshold, right? And so the question for ASML is like do you want China to be 20% of the global chipmaking market so that in 10 years you can still address 80% of the global market? Or do you want China to be 50% of the global chipmaking market, in which case in 10 years, 50% of the global market is unaddressable to you when Xi Jinping bans the importing of foreign technology? And the same is true of TSMC, right? If you are arming Cambrican and Byron and Alibaba and Tencent with these ASICs today, you know, today China would love to buy from TSMC as much as it possibly can. But they've made crystal clear that they're going to, you know, stop importing foreign technology as soon as their domestic ecosystem reaches some level of minimum viable uh performance. And so what TSMC is doing is they are destroying their own future addressable market. Because, you know, if NVIDIA and Google with the TPU and so on have 100% of the global AI chip market, then 100% of that market is still addressable to TSMC. But if Alibaba and Tencent become 25% or 50% of that, then that's all unaddressable demand in 10 years. Um, because Xi Jinping has said, I am willing to take a hit on performance. I want to buy everything I can foreign right now, but that's to build a bridge to a future that does not include foreign technology. And so, as I've said many times, the question is not, is China going to eliminate its reliance on foreign technology? They've already decided they're going to do that. The question is, are we going to make that easy for them or are we going to make that hard for them? And the easier we make it, the more painful the long-term consequences are going to be. It feels great this year when you look at your quarterly earnings from all these sales to China, but all you're doing is destroying your future addressable market demand. And that's true whether you're Taiwanese or Korean or Japanese, whatever you are. Just look at what happened to the solar panel equipment manufacturers. They all had great years selling to China, and then they all went out of business when China indigenized everything and their addressable market was destroyed. Um, I feel like we can we can call it there, Chris. Is there anything else that we should have talked about that we didn't?
SPEAKER_01I'll say one thing at the end, which is people are gonna say, Well, okay, you say that the government should do all these things, but obviously we've got the truce with China, so that makes it hard and and rare, and blah di blah di blah. So therefore we can't really do any of the things you said. I would dispute that. Because actually all the things that are direct controls on China, for the most part, in terms of things that we've talked about here, we've already controlled and implemented. What we're talking about is actually not, for the most part, new controls on China. We're talking about new controls on other countries and ways to circumvent Chinese smuggling or diversion or other ways that they are illicitly gaining access to.
SPEAKER_00And to clarify and enforcement of existing. Exactly. Yeah.
SPEAKER_01Exactly. We could just question whether or not the the truce is a good idea or a bad idea, but I think this falls well within the bounds of what is permitted under under the under you know, Busan or um per the recent summit. This is this is about clarifying enforcement of controls and preventing other countries from becoming pass-throughs for our controls to China. That is is that is wholly permissible and something I think the administration can and should do uh and also defend and saying we're not can we're not putting new controls on China. We're just making sure existing stuff's effective, but we've committed to not to not putting controls on new compliments. You said you didn't even want the hoppers, right? Like, by the way, China is putting tons of other controls on on solar panels and other technologies, biotech controls now. They're also putting a big kind of outbound investment screening on AI, they're putting restrictions on AI, talent flows. Like China is putting some serious technology protection measures in place. They don't have as many advantages over us, they don't have as many things to protect because we have you know many of the key assets, particularly on compute and and semiconductor manufacturing equipment. Um, but like it's only appropriate for us to be be you know taking you know similar steps to the other.
SPEAKER_00But they recognize the strategic value of the toolbox, I think is the most obvious way to interpret that. Yeah, yeah. Yes. Um that was a fabulous addition, and I'm so glad you added it. So um just the final thing, Chris, is uh where can folks find your work?
SPEAKER_01Well, uh I'm with CFR, so either you know CFR.org or obviously on X or various kind of other publications where um, you know, op-eds and others get published. So uh probab those are probably generally the best ways, but I think I'll have a number of things coming out on CFR.org, especially in the coming weeks, that um, you know, generally related to this problem. I'd love Greg, I'd love to work on some other things more. Um never slows down. Never slow down. So yeah, I will keep keep uh beating this drum.
SPEAKER_00All right. Well, thank you for doing so, and thanks for coming on the AI PowerPoint podcast. We were delighted to have you as our first guest. Uh so thanks for doing it.
SPEAKER_01I look forward to uh seeing your future guests being back in the future, and I'm so glad that uh you're you're back out there and looking forward to all the great work from Decision Tree and you and others. This is great. Thanks, Chris. Thanks, Greg.