TL;DR: US technology firms increasingly support Washington’s unilateral export controls because these policies protect proprietary intellectual property from China’s military-civil fusion strategy. By leveraging Foreign Direct Product rules and the CHIPS and Science Act, the US government forces global supply chains to decouple, securing market dominance for Western firms through 2026.

US technology giants are aligning with Washington's aggressive export controls to protect their market share and intellectual property. This policy alignment goes beyond simple compliance; companies now view national security restrictions as a shield against state-subsidized competition. See our Full Guide to understand how the relationship between Silicon Valley and the US government is transforming. This coordinated front aims to secure the domestic semiconductor supply chain while curbing Beijing's military advancement.

Why is the US government shifting away from the small yard high fence doctrine?

The US government abandoned the small yard, high fence doctrine to systematically degrade China’s capability to develop foundational technologies like artificial intelligence and supercomputing. Previously, Washington restricted only specific technologies with explicit military end-uses. Today, the Department of Commerce targets entire technological categories, weaponizing chokepoints in electronic design automation (EDA) software, advanced graphic processing units (GPUs), and semiconductor manufacturing equipment. US National Security Advisor Jake Sullivan declared that the goal is to maintain as large a lead as possible in these critical fields.

Combating Military-Civil Fusion

Beijing's strategy of military-civil fusion leverages commercial research to upgrade its nuclear, hypersonic, and surveillance systems. Washington responded by issuing sweeping export controls that freeze Chinese semiconductor development at current levels. By preventing Chinese entities from acquiring high-end chips and the tools to manufacture them, the US aims to isolate these military-adjacent programs from global technology inputs.

Expanding the Unverified List

The Bureau of Industry and Security (BIS) uses the Unverified List to automatically blacklist companies that refuse or fail compliance inspections. If a Chinese firm cannot verify its end-user status, the US government restricts its access to American technology. This mechanism forces commercial enterprises to prove they do not feed into military programs, complicating operations for multinational suppliers.

How do Foreign Direct Product rules affect European and Asian chip manufacturers?

Foreign Direct Product (FDP) rules prevent international companies from selling advanced technology containing American intellectual property to restricted Chinese entities without a US license. This long-arm jurisdiction forces foreign manufacturers to comply with US trade policies or face exclusion from the US market. The rules target key links in the global supply chain, such as Dutch lithography giant ASML and German engineering firm Siemens.

Restricting Dutch Photolithography Technology

ASML, which earned 15% of its 2021 revenue in China, had to bar its US employees from working on projects destined for Chinese customers. While ASML’s physical machines contain minimal US parts, the company must navigate the Department of Commerce’s expanded licensing requirements. This creates operational friction as European firms weigh the cost of compliance against the potential loss of the Chinese market.

Disrupting Electronic Design Automation Software

Siemens' electronic design automation division, which is headquartered in the US, must limit its software sales to Chinese firms on the Entity List. Because chip design depends almost entirely on US-origin EDA software, these restrictions effectively halt the development of new domestic Chinese chips. Foreign design firms cannot easily substitute these software suites, solidifying US leverage over global chip design.

How does the CHIPS and Science Act isolate the US semiconductor supply chain?

The CHIPS and Science Act isolates the US semiconductor supply chain by providing $52.7 billion in subsidies to build fabrication facilities inside the United States while prohibiting recipients from expanding advanced capacity in China. This legislation coordinates with export controls to ensure that companies receiving US funding do not expand advanced production capacity in China. By tying financial incentives to domestic manufacturing, the US government seeks to build a self-contained semiconductor ecosystem.

Incentivizing Domestic Fab Construction

Leading manufacturers like TSMC and Intel are constructing new fabs in Arizona and Ohio, driven by these federal subsidies. This shift reduces reliance on East Asian supply chains, which are vulnerable to geopolitical conflicts. It also ensures that advanced packaging and assembly processes occur closer to US design houses.

Creating Two Separate Global Semiconductor Ecosystems

The combination of subsidies and export bans is forcing a permanent balkanization of the global technology sector. By 2026, the market will likely divide into a US-compliant ecosystem and a parallel, less advanced Chinese supply chain. While this division increases short-term capital expenditures for tech firms, it provides US companies with protected, subsidized markets free from Chinese state-backed competitors.

What are the long-term operational risks of unilateral US export controls?

Unilateral US export controls run the risk of alienating key allies and accelerating China’s drive for technological self-sufficiency. Because the Biden administration implemented these measures without securing formal agreements from Brussels, Tokyo, or Seoul, international partners may seek to engineer US components out of their products. If allies bypass US technology, the long-term competitiveness of the American semiconductor industry will suffer.

Accelerating China's Domestic Substitution

Rather than stopping China's progress, strict export controls have intensified Beijing's efforts to build a domestic supply chain free from US influence. Chinese state funds are pouring billions into domestic alternatives like Naura Technology Group for etching equipment. While these domestic tools lag behind Western standards, state mandates force Chinese chipmakers to adopt them, accelerating their development cycle.

Straining Relations with European and Asian Allies

European and East Asian companies lose significant revenue when shut out of the Chinese market, prompting friction with Washington. If foreign competitors successfully design out US-origin components, they can sell freely to China, rendering US controls ineffective. The US must coordinate with allied governments to maintain the efficacy of these restrictive regimes.

Key Takeaways

  • US technology firms support aggressive export controls as a defensive measure against Chinese state-subsidized competition and military-civil fusion.
  • Foreign Direct Product rules enforce extraterritorial compliance, compelling key European and Asian manufacturers to restrict business with China.
  • The combination of the CHIPS Act and strict export rules is driving the permanent balkanization of the global semiconductor market by 2026.