China’s AI Chip Industry Takes Root: China banned GPUs and TPUs from U.S. manufacturers to promote domestic chips

The United States government’s effort to deprive China of AI computing power backfired as China turned the tables and banned U.S.-designed chips.

What happened: China’s government issued a directive that all new state-funded data centers must be built using chips made by domestic suppliers, Reuters reported in November. The policy emerged shortly after the U.S. reversed its years-long ban on sales to China of advanced chips manufactured using U.S. technology, including products of AI-chip leader Nvidia and its rival AMD. Rather than constrain China, U.S. policies spurred investment and innovation in China’s semiconductor industry.

Driving the story: The U.S. government aimed to block China’s access to AI on the belief that the technology would have as much geopolitical importance as oil. President Trump took a hard line in his first term from 2017 to 2020, limiting China’s access to cutting-edge technology, and he doubled down on this policy throughout 2025. However, the U.S. approach looked increasingly untenable as China’s semiconductor industry made surprising progress, the immense economic value of the AI chip market became clear, and trade restrictions locked Nvidia, now one of the world’s most valuable companies, out of its largest potential market.

• In April, Trump blocked sales to China of Nvidia and AMD’s lower-performing chips, which had been designed to satisfy earlier export controls. Nvidia said the tighter restrictions cost the company $5.5 billion.
• China’s Huawei CloudMatrix 384 system proved capable of delivering performance that rivals competing Nvidia systems. A cluster of 384 Huawei Ascend 910C chips, the system consumes significantly more energy to power 5 times as many chips as Nvidia’s systems.
• In August, after Nvidia and AMD met with President Trump, who subsequently met with China’s President Xi Jinping, the White House reversed course. The U.S. reauthorized sales to China of made-for-export chips under an unprecedented deal that required U.S. chip vendors to give the government 15 percent of any resulting revenue. 
• In October, exploding demand for AI hardware temporarily drove Nvidia’s market capitalization beyond a staggering $5 trillion, up from $3 trillion in mid-2024. Consequently, shutting the company out of China potentially limited the company’s value by tens of billions of dollars.
• China responded to the energy-inefficiency of its domestic chips by offering energy subsidies of up to 50 percent to companies that purchased chips made by Huawei and other domestic suppliers. Over the past 15 years, China’s ability to generate electrical power has surged while U.S. power generation has remained relatively flat, according to data from the International Energy Association. In 2025, President Trump signed executive orders to make more federal land available for lease and development by the energy industry and to fast track permitting for nuclear reactors. 
• In November, after China banned U.S. chips, President Trump further softened U.S. restrictions, allowing Nvidia and AMD to sell their made-for-export chips.

Behind the news: U.S. efforts met with some success denying China access to the latest chip-manufacturing equipment. However, with respect to the chips themselves, the U.S. barriers proved to be porous. 

• A thriving market for high-end Nvidia chips sprang up in China’s tech hub of Shanzhen.
• Chinese tech giants including Alibaba and ByteDance reportedly gained access to advanced AI computing power through cloud vendors who operate legally in other countries.
• DeepSeek reportedly stockpiled earlier Nvidia chips in advance of U.S. restrictions and optimized its DeepSeek-R1 and DeepSeek-V3 models to run well on outdated hardware. 

Where things stand: China is signaling that it’s willing to do without American hardware. That may be a sign of confidence, given Huawei’s progress. It may also be a bluff, as some authorities evaluate China’s semiconductor industry still to be years behind the frontier of high-volume chip fabrication. Either way, the hard-line U.S. strategy backfired, and its relaxation of trade restrictions is a concession to economic and diplomatic realities.