Mr. Wu this was an amazing article, with so many kill-shot quotes 👏. Amazing work.
I think your sharpest point is basically spelling out the perils of "forced import substitution" for the US.
An export ban rarely creates a foreign competitor from nothing; what it usually does is "activate" one that was already sitting there as an underfunded strategic hedge. The latent capability, and sometimes the seed funding, tends to exist already, but there is usually no reason to fully fund or actually adopt it while buyers can purchase the superior American product instead. China was already funding alternatives, but a ban just demands success and full cultivation on the Chinese side.
You are right, a monopoly ecosystem like Nvidia's CUDA has a strong moat because the SWITCHING COSTS are too high. Many Chinese firms do not want to waste years writing software for a sub-par chip when they can just buy Nvidia chips. And the moat is not only the switching cost, it is the accumulated library & developer base built up around CUDA, the same way a mobile OS lives or dies on its app developers. A ban manufactures the rival developer ecosystem that a software moat depends on, which is exactly what Huawei got handed.
The export control removes the friction and hands the domestic challenger in China a guaranteed captive market, which turns a slow hedge into an urgent commercial program with demand already attached.
By forcing Nvidia out, the US government eliminated that economic friction. Biden's strategy gave Chinese tech firms a massive, existential market to fund and adopt domestic alternatives (like Huawei's Ascend stack). His strategy turned a competitor that might never have mattered into one that now has to be taken seriously, which is why Jensen lobbied so hard against export controls.
Also, there are so many examples of "forced import substitution" working in China.
1) Sunway TaihuLight is the clean case. In 2015 the Obama administration blocked Intel from exporting its high-end Xeon server processors to China's top supercomputing centers, cutting off the chips behind the Tianhe-2, then the fastest machine in the world. China's domestic processor line predated the ban, but the ban is what pushed it to the top of the global rankings a year later on entirely homegrown silicon, a link TOP500 (the body that maintains the official supercomputer ranking) attributed to the embargo directly.
2) Huawei is the same shape. Huawei's HarmonyOS lived as an IoT project until the Trump administration's 2019 cutoff of Google mobile services forced it into a full operating system, now second in China i think.
An Obama ban & a Trump ban producing the same backfire points to a structural feature of the tool rather than a flaw of one administration's execution. I can point to so many other examples.
Before some fool tries to say I am suffering from selection bias, the honest part is that this backfire does not always happen, and the failure cases reveal the actual rule.
Forced substitution backfires on the banner and succeeds for the banned only when two conditions both hold:
1) The target market is large enough to amortize the fixed cost of building the substitute (which China has in spades but a small African country doesn't)
2) The technology's tool and IP stack is shallow enough to replicate.
China almost always satisfies the first, which is why the dynamic shows up there and would not in a small economy. The second is where it varies. A mobile OS, a RISC CPU design, or mature-node fabrication is shallow enough, so the ban "funds" a rival. EUV lithography and commercial jet engines are deep, tacit, and monopolized, so the ban genuinely denies. China's SMIC is stuck doing 5nm-class work on deep-ultraviolet multipatterning at poor yields while TSMC ramps 2nm, and the C919 still flies on Western engines after decades of trying.
Which is why ending Biden's strict export controls and letting Nvidia sell into China again is a more defensible call than it looks. If the stack is shallow enough to copy and the market is big enough to pay for the copy, the export ban mostly forecloses Nvidia's revenue while subsidizing the rival. Keeping the customer dependent on your ecosystem does more to preserve the moat than handing them a reason to replace it.
When Kamala/Gavin Newsom/Hunter Biden comes into power in 2028, I don't think they'll understand this and they'll just continue the export ban. But, they'll have the shocked Pikachu face when China has its replicant.
You are talking past Jensen's adversaries. They understand all this, and know they are hurting nVidia/America's semi leadership in the long term. They think we live in a world of dangerous AI with short timelines to AGI and thus believe it's more important to secure a short-term compute advantage for the US.
If you have longer AGI timelines then allowing nVidia to sell into China might make sense.
Yes, a technological advantage is always temporary, and so it should be, for the good of mankind. It's better to take on the role of a teacher rather than the dog in the manger. Open Source is the way to harness the power of the many. I'm looking forward to the demise of those who seek to monopolize to their exclusive advantage. And the sooner the better. If this is not understood and fully internalized there is no hope for capitalism as we see it in the West today. By the way, I believe that Chinese engine manufacturers have materially improved the efficiency of the internal combustion engine, proving that technological advantages are indeed temporary. Following in the footsteps of Honda.
Amazing article! It is not technology but business model. I could not agree more.
The China advantage against USA and other western countries is lack of understanding China.
They keep thinking about hegemony and China not.
Chinese is not looking for hegemony as western countries always did.
If that was the case in the 15/16 centuries China could have dominated the world. They had all the means to do it but they did not. Otherwise western countries sent their vessels to dominate Asia. Chinese Wall was a defensive strategy not the aggressive strategy like the Armadas and air craft carriers.
China only wants to survive and keep moving . And they will do and they are just doing what ever it takes to keep their way of life not forcing others to follow it is own. USA disadvantage against China is simple. They do not understand China.
I you two are running out from a hungry lion you only need to run faster. That was exactly what Jensen said. But Jensen is Chinese American not a Western colonialist minded American.
Got mix feelings, the guy is actively engaged in blowing up a bubble which will crush millions of people. It will be raining bodies from the skyscrapers when this one goes.
Mr. Wu this was an amazing article, with so many kill-shot quotes 👏. Amazing work.
I think your sharpest point is basically spelling out the perils of "forced import substitution" for the US.
An export ban rarely creates a foreign competitor from nothing; what it usually does is "activate" one that was already sitting there as an underfunded strategic hedge. The latent capability, and sometimes the seed funding, tends to exist already, but there is usually no reason to fully fund or actually adopt it while buyers can purchase the superior American product instead. China was already funding alternatives, but a ban just demands success and full cultivation on the Chinese side.
You are right, a monopoly ecosystem like Nvidia's CUDA has a strong moat because the SWITCHING COSTS are too high. Many Chinese firms do not want to waste years writing software for a sub-par chip when they can just buy Nvidia chips. And the moat is not only the switching cost, it is the accumulated library & developer base built up around CUDA, the same way a mobile OS lives or dies on its app developers. A ban manufactures the rival developer ecosystem that a software moat depends on, which is exactly what Huawei got handed.
The export control removes the friction and hands the domestic challenger in China a guaranteed captive market, which turns a slow hedge into an urgent commercial program with demand already attached.
By forcing Nvidia out, the US government eliminated that economic friction. Biden's strategy gave Chinese tech firms a massive, existential market to fund and adopt domestic alternatives (like Huawei's Ascend stack). His strategy turned a competitor that might never have mattered into one that now has to be taken seriously, which is why Jensen lobbied so hard against export controls.
Also, there are so many examples of "forced import substitution" working in China.
1) Sunway TaihuLight is the clean case. In 2015 the Obama administration blocked Intel from exporting its high-end Xeon server processors to China's top supercomputing centers, cutting off the chips behind the Tianhe-2, then the fastest machine in the world. China's domestic processor line predated the ban, but the ban is what pushed it to the top of the global rankings a year later on entirely homegrown silicon, a link TOP500 (the body that maintains the official supercomputer ranking) attributed to the embargo directly.
2) Huawei is the same shape. Huawei's HarmonyOS lived as an IoT project until the Trump administration's 2019 cutoff of Google mobile services forced it into a full operating system, now second in China i think.
An Obama ban & a Trump ban producing the same backfire points to a structural feature of the tool rather than a flaw of one administration's execution. I can point to so many other examples.
Before some fool tries to say I am suffering from selection bias, the honest part is that this backfire does not always happen, and the failure cases reveal the actual rule.
Forced substitution backfires on the banner and succeeds for the banned only when two conditions both hold:
1) The target market is large enough to amortize the fixed cost of building the substitute (which China has in spades but a small African country doesn't)
2) The technology's tool and IP stack is shallow enough to replicate.
China almost always satisfies the first, which is why the dynamic shows up there and would not in a small economy. The second is where it varies. A mobile OS, a RISC CPU design, or mature-node fabrication is shallow enough, so the ban "funds" a rival. EUV lithography and commercial jet engines are deep, tacit, and monopolized, so the ban genuinely denies. China's SMIC is stuck doing 5nm-class work on deep-ultraviolet multipatterning at poor yields while TSMC ramps 2nm, and the C919 still flies on Western engines after decades of trying.
Which is why ending Biden's strict export controls and letting Nvidia sell into China again is a more defensible call than it looks. If the stack is shallow enough to copy and the market is big enough to pay for the copy, the export ban mostly forecloses Nvidia's revenue while subsidizing the rival. Keeping the customer dependent on your ecosystem does more to preserve the moat than handing them a reason to replace it.
When Kamala/Gavin Newsom/Hunter Biden comes into power in 2028, I don't think they'll understand this and they'll just continue the export ban. But, they'll have the shocked Pikachu face when China has its replicant.
You are talking past Jensen's adversaries. They understand all this, and know they are hurting nVidia/America's semi leadership in the long term. They think we live in a world of dangerous AI with short timelines to AGI and thus believe it's more important to secure a short-term compute advantage for the US.
If you have longer AGI timelines then allowing nVidia to sell into China might make sense.
Yes, a technological advantage is always temporary, and so it should be, for the good of mankind. It's better to take on the role of a teacher rather than the dog in the manger. Open Source is the way to harness the power of the many. I'm looking forward to the demise of those who seek to monopolize to their exclusive advantage. And the sooner the better. If this is not understood and fully internalized there is no hope for capitalism as we see it in the West today. By the way, I believe that Chinese engine manufacturers have materially improved the efficiency of the internal combustion engine, proving that technological advantages are indeed temporary. Following in the footsteps of Honda.
Amazing article! It is not technology but business model. I could not agree more.
The China advantage against USA and other western countries is lack of understanding China.
They keep thinking about hegemony and China not.
Chinese is not looking for hegemony as western countries always did.
If that was the case in the 15/16 centuries China could have dominated the world. They had all the means to do it but they did not. Otherwise western countries sent their vessels to dominate Asia. Chinese Wall was a defensive strategy not the aggressive strategy like the Armadas and air craft carriers.
China only wants to survive and keep moving . And they will do and they are just doing what ever it takes to keep their way of life not forcing others to follow it is own. USA disadvantage against China is simple. They do not understand China.
I you two are running out from a hungry lion you only need to run faster. That was exactly what Jensen said. But Jensen is Chinese American not a Western colonialist minded American.
Got mix feelings, the guy is actively engaged in blowing up a bubble which will crush millions of people. It will be raining bodies from the skyscrapers when this one goes.