Why rolling back Biden’s semiconductor sanctions on China makes economic sense

The rollback of Biden-era semiconductor export restrictions under the Trump administration is not a concession to Beijing. It is a recalibrated capital strategy that seeks to manage risk, preserve influence, and maintain market access in one of the most economically consequential technology sectors. What looks like retreat is, in fact, realignment. Washington is replacing symbolic rigidity with operational precision.

Export controls have always served dual purposes: national security and economic leverage. But when the Biden administration issued sweeping restrictions in 2022 on the sale of advanced chips and semiconductor manufacturing tools to China, the policy overextended both aims. Instead of surgically limiting Chinese military AI capabilities, it created spillover effects that harmed U.S. firms, disrupted global supply chains, and accelerated China's own drive toward semiconductor self-sufficiency. Trump’s reversal is not ideological. It is structural.

The Trump-era relaxation focuses on allowing exports of older-generation GPUs and chipmaking tools, particularly those tied to civilian applications like autonomous driving, healthcare, and cloud computing. The most advanced technologies—extreme ultraviolet (EUV) lithography machines, cutting-edge AI accelerators, and quantum chip systems—remain under strict control. In effect, the new policy draws a sharper boundary: deny capabilities with strategic military use while allowing commercial-grade tech to circulate in order to maintain leverage, earnings, and information flow.

This recalibration reflects deeper lessons from capital market behavior. US semiconductor firms derive up to 40% of their revenue from China. The bluntness of Biden's controls created valuation pressure on chip stocks, triggered hedge fund divestments, and prompted sovereign investors to reallocate toward non-US supply chain plays. The Philadelphia Semiconductor Index dropped 17% in the six weeks following the October 2022 announcement. This was not simply market correction—it was a reflection of misaligned policy signaling.

Moreover, China did not remain static. Despite the export bans, SMIC and Huawei pushed forward with domestic fabrication capabilities, reportedly producing 7nm chips under sanctions using DUV (deep ultraviolet) lithography. By 2024, Huawei unveiled its Ascend AI chips for local data center use, bypassing blocked NVIDIA shipments. Sanctions, in this case, did not contain the threat—they accelerated it. The Trump recalibration acknowledges that restriction alone cannot halt advancement in a system as globally integrated as the chip supply chain.

Historically, this is not unprecedented. During the Cold War, the US often permitted sales of civilian-grade technology to adversaries or neutral states to maintain soft power and shape technological dependencies. Denial was selective, and control was exerted via licensing and compliance audits. The Biden controls broke with that tradition, attempting a full-spectrum denial strategy ill-suited to the entangled commercial realities of the 2020s.

This shift also reflects a broader fatigue with unilateral decoupling. As capital markets and multinational boards increasingly demand stable planning environments, policies that heighten unpredictability become economically self-defeating. Trump’s shift is a nod to this reality: deny where it matters, trade where it pays, and influence where you still can. This is not appeasement—it is informed restraint.

From a cross-border capital perspective, this policy pivot is being watched closely by sovereign wealth funds and institutional investors. Singapore's GIC and Temasek, both exposed to semiconductor infrastructure via holdings in ASML, TSMC, and equipment suppliers, are likely to interpret the move as risk moderation. GCC allocators, particularly those building long-duration AI infrastructure portfolios, are likewise recalibrating their exposure in line with new export licensing thresholds. In this context, policy is not just about chips. It's about capital flow signaling.

Japan and the Netherlands—key players in the global semiconductor equipment space—have not yet followed Washington's lead in reversing their own curbs. ASML continues to face restrictions on shipping advanced EUV tools to China, and Tokyo has maintained its export license regime for precision materials. This divergence reflects differing assessments of strategic risk and industrial exposure. However, the U.S. shift may prompt a re-evaluation among allies, especially as commercial players lobby for greater harmonization.

The geopolitical reading must be clear-eyed. This is not the U.S. softening on China. It is a tactical withdrawal from an overleveraged position that threatened to erode America's own industrial competitiveness. Re-establishing selective flow ensures Washington remains inside the supply chain loop, observing developments and monetizing access while retaining the ability to tighten the valve again.

In parallel, this recalibration allows the U.S. to prioritize the next layer of control: software and system-level AI influence. Design tools like EDA (electronic design automation) software, AI model training infrastructure, and cloud governance represent the new strategic battlegrounds. These are areas where U.S. firms still hold dominant positions and where control mechanisms can be applied with greater effect.

The broader implication is that export policy is maturing from ideology to instrument. When a denial regime weakens your capital position more than it constrains your rival, it ceases to be leverage. The Trump realignment represents a shift toward dynamic friction—engineering costs into China's tech stack without freezing US firms out of future growth markets.

This framework may set precedent for future tech-policy interaction. We are likely to see more selective licensing systems, targeted compliance reviews, and value-chain segmentation strategies. These will allow policymakers to interfere less with aggregate flows while still shaping the strategic perimeter. It is no longer about building walls—it is about redrawing corridors.

The semiconductor export control rollback is therefore best understood as a sovereign adjustment to market realities, not a political reversal. It rebalances security posture with economic interest, reasserts regulatory precision over broad-stroke sanctions, and recalibrates how leverage is measured in a world where chips are both currency and conduit.

For fund managers, policy watchers, and trade partners, the message is subtle but firm: the U.S. remains intent on controlling the semiconductor high ground, but it will do so with instruments that preserve—not diminish—its economic position. Export policy, in this sense, is no longer just about containment. It is about continuity of influence through smarter constraint.

Capital discipline, not confrontation, is the new lever. And in this shift, Trump’s reversal reveals a broader truth: power in the chip economy will not be held by those who isolate, but by those who know where to connect—and when to pull back.