On its surface, the U.S. chip sanctions regime appears to have locked in an American victory in the AI race. As of late 2025, the best U.S. AI chips were roughly five times more powerful than China’s leading chips; according to one analysis, that gap is projected to widen to 17 times by the second half of 2027. Yet this single-axis framing sits in striking tension with the assessment offered by U.S. industry leaders themselves. Testifying before the U.S. Senate Commerce Committee in May 2025, AMD CEO Lisa Su stated explicitly that maintaining the U.S. competitive edge in AI innovation “actually requires excellence at every layer of the stack.” AI competitiveness, in other words, is a multi-layered system spanning silicon, software, models, energy, and ecosystems – and a chokepoint at any single layer is insufficient to secure the whole.
China’s response operates precisely on this multi-layered logic: rather than confront the American chip fortress head-on, it circumvents it – replicating the strategy of “encircling the cities from the countryside” that it has already deployed successfully in solar panels and consumer electronics, among other sectors. The logic is straightforward: forgo a frontal assault on the high-end market, and instead penetrate the global mid-to-low-end application market through algorithmic efficiency, energy advantage, and aggressive pricing, until scale dynamics begin to compress the high-end fortress in reverse.
