The GAIN AI Act has not yet entered into force and is currently being negotiated as part of the National Defense Authorization Act (NDAA) for 2026. It represents a redundant and interventionist response to a problem for which there is, to date, no concrete evidence: that US chipmakers are sidelining domestic customers or creating shortages in the US market in order to serve foreign demand.

The proposal would require chip manufacturers to prioritize American customers over export markets, with the stated objective of protecting national security. Critics, however, warn that the law is unnecessary and could ultimately weaken US technological leadership by introducing additional barriers in a sector already subject to a strict export control regime.

The strategic role of high-performance chips in AI development

The importance of artificial intelligence to the modern world is undeniable, and with it comes the central role of high-performance chips, which form its true foundation. These semiconductors underpin everything from data centers and advanced language models to scientific and military applications, making them a strategic resource for innovation, defense and economic competitiveness.

The problem is that the US government already exercises tight control over exports of sensitive technology. Sales of advanced chips are subject to rigorous licensing regimes that allow federal authorities to block transactions deemed contrary to national security.

The concern underlying the GAIN AI Act is that US manufacturers could, during periods of strong global demand, prioritize foreign customers over the domestic market. However, there is no evidence that this is occurring, nor are there signs of chip shortages in the domestic market.

Risks of market intervention and global competitiveness

While national security concerns are legitimate, state intervention in markets rarely improves their functioning, especially when there is no concrete market failure to justify such intervention. Analysts at the Brookings Institution and major financial institutions have warned that imposing legal sales priorities can introduce regulatory uncertainty and weaken the global competitiveness of US chips.

In attempting to protect its domestic market, the US government risks catalyzing China’s technological rise. Whenever access to American chips becomes limited or uncertain, Beijing responds by accelerating the development of domestic alternatives and reorganizing its supply chain.

Financial institutions and independent analysts have also observed these effects. Analysts at JPMorgan, for example, have noted that China’s largest technology companies are well-positioned to lead artificial intelligence growth in 2026 despite limitations on access to US technology. This assessment suggests that export restrictions are not slowing China’s technological progress — they’re driving the reorganization of its domestic ecosystem.

This pattern is already beginning to materialize in concrete ways. In 2025, Huawei began mass shipments of its Ascend 910C artificial intelligence chip, explicitly designed to replace the US company NVIDIA’s solutions across a wide range of workloads in the Chinese market. While the chip does not yet match the most advanced US offerings at the cutting edge, it is sufficiently capable for large-scale inference, cloud services and many enterprise applications. Its rapid deployment reflects not only technological progress but also the existence of a guaranteed domestic market created by US export restrictions.

Shortly thereafter, Chinese web services company Baidu announced new processors in its Kunlunxin line, reinforcing a broader shift toward domestically produced AI hardware. Kunlun chips are already being integrated into cloud infrastructure, telecommunications projects and financial services, supported by software stacks optimized for local silicon. Together, these developments point to the emergence of a self-reinforcing national AI hardware ecosystem in China, one that benefits from scale, captive demand and accelerated learning cycles. Rather than slowing China’s progress, reduced access to US chips is helping to consolidate domestic champions and accelerate technological self-sufficiency.

Looking ahead: policy alternatives to strengthen US competitiveness

Although the GAIN AI Act was proposed as part of the NDAA for 2026, the amendment was not included in the final version of the bill reconciled by both chambers. The fact that the debate remains open makes it especially important to prevent similar proposals from resurfacing in other forms.

Instead, lawmakers should pursue alternatives that strengthen US competitiveness, such as using existing export control mechanisms, investing in productive capacity, energy and talent, and coordinating with allies. In a global race in which national security ultimately depends on the ability to innovate and compete worldwide, the US cannot afford to cede its advantage to China.

[Kaitlyn Diana edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.