<p>Huawei’s chairman recently noted that U.S. export controls have not significantly hindered China’s technological progress. Instead, these restrictions have led to increased investment in domestic technology, facilitating Huawei's global expansion. A recent example is Huawei's proposal to supply Egypt with approximately 2,000 artificial intelligence chips, indicating the company's confidence in its domestic manufacturing capabilities.</p>
<p>This deal, while not sufficient to transform Egypt into a leading artificial intelligence hub, highlights a potential flaw in the U.S. export-control strategy: restrictions that impede Chinese firms domestically may encourage them to seek international customers.</p>
<p>Huawei has presented a 12-month plan to Egypt to enhance its AI capabilities for military, surveillance, and governmental purposes. This includes 1,408 Ascend 950-series accelerators for AI model training and 600 additional chips for operational use, in collaboration with iFlytek, a Chinese surveillance firm that is on the U.S. blacklist.</p>
<p>The performance of these chips is limited, providing capabilities comparable to only a few hundred of Nvidia’s top commercial accelerators. U.S. companies maintain larger operational clusters, which means Egypt will gain some AI capacity but will not become a leader in the field through this initiative.</p>
<p>U.S. restrictions have imposed significant costs on Chinese firms, limiting their access to advanced processors and semiconductor manufacturing equipment, which affects efficiency and Huawei’s mass production capabilities. Huawei's chips currently lag behind Nvidia's in terms of speed, software compatibility, and energy efficiency, giving American firms a competitive edge.</p>
<p>However, these export controls also alter the long-term strategies of companies and governments. Chinese businesses are increasingly motivated to develop domestic semiconductor alternatives, supported by government financing.</p>
<p>Foreign buyers are also affected by these pressures. Licensing delays and uncertain access lead governments and companies to reconsider their purchasing and engineering decisions, creating demand for alternative suppliers and directing resources toward product improvement.</p>
<p>Initial replacements often meet immediate customer needs, and as customers gain experience, the performance of these alternatives improves. For instance, the Chinese AI company Z.ai has developed a model that competes with leading Western models while operating efficiently on locally produced infrastructure.</p>
<p>Egypt represents a new phase in Huawei’s strategy. The company, which initially focused on developing Ascend processors as domestic alternatives to Nvidia chips, is now targeting foreign markets. Its proposal to Egypt includes a comprehensive package of processors, data centers, software, technical support, and surveillance tools, all relying on Chinese technology.</p>
<p>Smaller markets like Egypt provide easier entry points for Chinese suppliers. U.S. semiconductor companies have historically viewed Egypt as a lower-tier opportunity, and since 2023, U.S. regulations have required licenses for advanced semiconductor equipment sales there. Huawei has approached this market with a state-backed offer, prompting U.S. officials to consider counteroffers.</p>
<p>This situation raises concerns for U.S. policymakers. Lengthy licensing reviews hinder American companies from selling technology effectively. In contrast, Huawei can provide a comprehensive package of hardware, financing, software, and support, making it challenging for U.S. firms to reclaim customers lost due to export policies.</p>
<p>The Egyptian proposal alone does not provide a comprehensive assessment of the export-control system, as Cairo may choose to reject Huawei’s offer in favor of an American alternative. However, the significance of this project extends beyond the immediate computing capabilities.</p>
<p>Initial installations create infrastructure, train personnel, establish software standards, and foster maintenance agreements and political relationships. Each completed project facilitates future sales. Huawei has successfully employed this strategy in telecommunications, becoming a leading vendor in many developing markets.</p>
<p>The competition in AI now encompasses the entire technology stack that governments and developers adopt, including computing capacity, data center hardware, software, technical expertise, financing, and long-term support. Each new customer contributes to revenue, operational experience, and developer feedback, potentially allowing stricter U.S. regulations to inadvertently assist Chinese companies in enhancing their products and expanding their foreign customer base.</p>
<p>The U.S. requires a more efficient and predictable licensing process for technology and services. Additionally, it must compete with the financing and technical support that Beijing offers in developing markets. While American companies have superior products, licensing delays hinder their ability to serve interested customers.</p>
<p>Export restrictions can provide temporary advantages, but this time is valuable only if the U.S. utilizes it to enhance industrial capacity and secure foreign buyers. If U.S. suppliers remain sidelined while Beijing secures customers, Huawei’s future proposals may involve larger orders and a broader customer base.</p>
<p><em>Kristian Stout is director of innovation policy with the International Center for Law & Economics.</em></p>