Back & Forth 5: Do Export Controls Erode the United States’ Lead—Or Protect It

Commentary by Marco Macchiavelli and Navin Girishankar

Published August 13, 2025

The Economic Security and Technology Department's Back & Forth is a commentary series that aims to surface debates on economic security and technology issues that deserve more attention. Through contrasting viewpoints-often taking opposing sides-the series aims to model "the art of thoughtful disagreement" by inviting bipartisan, solutions-oriented perspectives.

Table of Contents

Export Controls: More Harm Than Good?

Marco Macchiavelli, Assistant Professor of Finance, University of Massachusetts Amherst

In the midst of the current technological rivalry between the United States and China, the U.S. government has employed export controls to restrict China from acquiring advanced domestic technology. In particular, the Department of Commerce has the power to forbid domestic firms from exporting certain technologies to a list of Chinese entities, such as Huawei and Semiconductor Manufacturing International Corporation (SMIC). The purpose of U.S. export controls is to safeguard the technological competitive edge of the U.S. economy and to limit the transfer of dual-use technologies to China and its military.

However, by their very nature, export controls harm the profitability of domestic firms producing the very same technologies that export controls are trying to safeguard. Indeed, as documented in Crosignani et al. (2024), once their Chinese customers are subject to export controls, domestic firms experience a decline in revenues, profitability, and stock market capitalization. The decline in revenues comes from the fact that these domestic firms cannot easily find alternative non-Chinese customers to make up for the loss in revenues caused by export controls. If the U.S. government is keen to continue using export controls, it seems natural to ask whether it should incentivize the reshoring of critical high-value-added segments of the supply chain to the United States. The main concern is that incentives given to inefficient national champions, such as Intel, may ultimately waste taxpayer money and add production capacity to firms that are far behind the cutting edge, ultimately worsening the competitiveness of the U.S. economy.

To holistically assess the effectiveness of export controls, we still need a few questions answered.

First, the issue of circumvention. A few non-U.S. firms build machinery that is instrumental for the production of advanced technologies. See, for instance, the case of ASML, the most advanced producer of lithographic tools that are necessary for advanced microchips. ASML was selling its machines to China until the U.S. government successfully lobbied the Dutch government to stop it. Circumvention takes place in other ways too, including setting up front companies that purchase the restricted technologies under a false identity, only to reexport them to the very same Chinese firms subject to export controls. Notice that reexport is a violation of export controls, but it is challenging to enforce. Recent reports indeed suggest that some AI chips subject to export controls were smuggled to China.

Second, as with any intervention, we need to consider the so-called blowback, namely the counteracting force that may ultimately blunt the usefulness of export controls. Are export controls forcing China to decouple from the United States even faster, and to double down on indigenous innovation to substitute the U.S. technologies under export controls? Are export controls intensifying intellectual property (IP) theft by China? There is little to no empirical evidence to assess the magnitude of these channels, and more research is needed. However, anecdotal evidence suggests that China is getting closer to the cutting edge in advanced technologies. After an almost complete collapse as the first export controls were introduced in 2019, Huawei shocked markets in 2023 when it unveiled a new phone containing advanced chips. Similarly, DeepSeek rattled the AI sector when it displayed competitive outcomes at a fraction of the computational cost.

And finally, the most important question. What is the goal here? China has become very efficient at scaling manufacturing in record times, something that no other country seems to be able to do at that same level of efficiency. As such, China has become a key partner to U.S. businesses, including Apple. The main justification for U.S. countermeasures is the persistent and pervasive use of espionage tactics to conduct IP theft from U.S. companies, government labs, and universities. The goal of an economic strategy toward China should be to maintain economic synergies while preserving domestic IP protection. Moreover, if the United States wants to maintain leverage on China, export controls are clearly a self-inflicted wound as they reduce domestic leverage and instead boost Chinese independence from the U.S. economic orbit.

Why Giving Up on Export Controls Is Giving Up on the Tech Race

Navin Girishankar, President, Economic Security and Technology Department, and Matt Borman, Senior Technical Expert (Non-resident), Economic Security and Technology Department

Any serious debate about export controls-a tool to protect U.S. and allied national security in today's tech race-must start with a blunt fact: the United States now faces a wider set of threats from adversaries, chiefly the People's Republic of China (PRC), than it did from the Soviet Union. There are national security threats, including Beijing's declared policy of civil-military fusion, designed to rapidly channel commercial breakthroughs into military capabilities aimed at the United States and its allies. There are collateral threats to U.S. technology leadership: China is an innovation competitor with a surging research base, its firms are battle-tested in global competition, and its ecosystems are poised to lock in advantage across life sciences, robotics, climate tech, and potentially quantum communications. And there are economic security threats: China is not only embedded in global technology markets but also able and practiced in using malign and mercantile tactics-IP theft, coercive partnerships, state-subsidized dumping-to acquire advanced technologies, build capacity, and seize market share.

Most critics of export controls, underplay-or like Marco Macchiavelli-simply do not acknowledge the threats to U.S. and allied national security that undermine the integrity of technology markets, the security of the United States' assets (including intangible assets such as ideas), and the long-term incentives for U.S. companies to grow and compete. He correctly notes-but overweights-the concern that export controls cut off U.S. companies from China's large, competitive, and increasingly innovative market. Let's take his case point by point.

Profitability. Macchiavelli claims export controls hurt U.S. companies' profitability. True-they impose costs and lost sales. But the relevant measure is the relative competitive position of firms. Effective controls mean blocking access from both U.S. and non-U.S. sources to prevent erosion of market share to foreign competitors. The real risk is not missing a sale to Huawei-it is allowing foreign competitor firms to undercut U.S. controls, allowing China to reach the frontier faster, develop substitutes, and then reenter global markets, including ours, on terms that displace American products. That scenario is far more damaging to long-term U.S. technological leadership and U.S. national security that comes from technology leadership, than the immediate loss of export revenue. This is precisely why export controls must be coordinated with allies to close off alternative supply routes.

Circumvention. Macchiavelli is correct to point out that front companies and gray markets exist. But leaping from implementation challenges to discounting the very use of export controls is overkill. Without export controls, PRC-linked firms would not need to circumvent anything-access to advanced, dual-use capabilities would be wide open. The real test is whether controls raise costs, slow timelines, and create friction. Evidence says they do: PRC AI developers are paying double market prices for smuggled, leading-edge chips, moving them through complex third-country transshipments. That is not seamless access-that is delay and disruption. Even with massive annual government subsidies, China's indigenous chip production capabilities continue to lag behind leading-edge capabilities. And when key allies in Europe and Asia limit key exports, the effect compounds: local enforcement plus U.S. coordination yields better compliance and stronger impact.

Design-Out. Macchiavelli's "design-out" argument-that controls spur China to innovate around them-is valid. Some of our CSIS scholars have pointed out this risk, but it ignores the counterfactual. Beijing's self-sufficiency drive predates the current export control policy. Indeed, it is a central plank of Chinese industrial strategy, enshrined in initiatives like "Made in China 2025" and the 14th Five-Year Plan's push for "technology independence." Again, the relevant question is whether the PRC's advances would be faster or slower without controls. The evidence suggests that export controls have bought time-giving the United States a "commanding lead" in key dimensions of the AI competition, and through allied cooperation, ensuring that China's domestically produced semiconductor equipment tools and chips remain behind, despite massive state investment. Granted, buying time is valuable only if the United States uses it to invest and innovate-a question that deserves more attention and scrutiny.

A Tool, Not a Strategy. Export controls are a tool, not a strategy. To be effective, they should be deployed in service of clear goals and complemented by other economic tools. Here, we agree with Macchiavelli, although he appears skeptical of any form of industrial policy, including the use of national champions. That's a worthwhile debate-what is the right mix of tools to securitize U.S. innovation? Is combining export controls with subsidized national champions more or less effective than using export controls along with domestic deregulation and investment attraction policies?

Beyond China. Macchiavelli misses that export controls, as an instrument of U.S. national security policy, matter far beyond the China context. Since 2022, they have eroded Russia's ability to produce precision missiles by increasing costs and forcing reliance on inferior substitutes. These benefits should be acknowledged, even while noting Russia's ability to acquire chips from the PRC and other sources. The larger point is that, in an age of multipolar technology risks, the United States requires export controls for more than one adversary.

Like any other economic tool, export controls are not perfect. They must continue to evolve to address modern threats related to the AI diffusion, quantum computing, biotechnology, and advanced manufacturing. Discounting them based on a lopsided understanding of their role in economic and national security would be to accept a faster erosion of the very technological edge that underwrites U.S. security.

Going forward, the efficacy of export controls will depend on setting clear goals, as Macchiavelli correctly points out-but it will also depend on targeting technologies where the returns to national security are greatest, establishing metrics to evaluate impact, monitoring their impact in near-real time, and coordinating with allies. It will also require adequate resourcing for the Department of Commerce's Bureau of Industry and Security to expand technological expertise, enforcement capacity, and engagement with allies.

Such efforts, however, will be diminished if export controls are used as bargaining chips in trade talks. For this reason, the Trump administration's recent reversal on restrictions on chips in response to China's easing of its rare earth restrictions, as well as reports that licenses are being provided to U.S. companies in exchange for a share of export revenues, is worrying. Such moves suggest that this vital tool in America's economic security arsenal is transactional rather than principled, negotiable rather than inviolable.

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