The GAIN AI Act Looks More Like Protectionism Than National Security

A new amendment to the Defense Department's annual funding bill could upend global semiconductor markets. The Guarding American Innovation in Artificial Intelligence (GAIN AI) Act, introduced by Sen. Jim Banks (R–Ind.), would force U.S. chipmakers like Nvidia, AMD, and Intel to give American buyers first dibs on advanced graphics processing units (GPUs) before fulfilling overseas orders. It would also require anyone exporting, reexporting, or transferring such chips abroad to obtain a license from the Commerce Department.

Banks claims the GAIN AI Act "puts American companies and researchers before our adversaries like China." In practice, the proposal functions as a government-imposed price control that could distort supply chains and disrupt global semiconductor markets. 

Current export controls instituted by both the Biden and Trump administrations already ban the sale of the most powerful GPUs—such as Nvidia's A100/H100 or RTX 5090—to China. The GAIN AI Act would take those restrictions a step further, targeting even less advanced AI chips through Banks' attempt to put "America first in action."

Under the GAIN AI Act, companies exporting "advanced integrated circuits," or products containing them, to "countries of concern," must certify that U.S. customers had first refusal and that there is no current demand backlog for U.S. customers. The bill defines countries of concern as any under a "comprehensive U.S. arms embargo," or those that are hosting, or have "the intention of hosting" a military or intelligence facility linked to an embargoed country.

Companies must further certify that the export won't reduce U.S. production capacity or offer foreign entities preferential pricing or terms, and that foreign entities won't use the product to compete with U.S. companies outside their domestic market.

The act would effectively place advanced computer chips essential for emerging technologies (like AI, machine learning, and high-performance computing) under export controls until U.S. demand is fully met, adding new regulatory friction to the fast-moving world of tech sales.

Nvidia, the world's leading provider of advanced GPUs, strongly opposes the proposed legislation, stating that the bill would "restrict competition worldwide in any industry that uses mainstream computing chips," and warning that it attempts to "solve a problem that does not exist." 

The GAIN AI Act mirrors other recent examples of excessive state intervention in the affairs of private businesses. In August alone, the Trump administration secretly placed tracking devices in targeted exports of advanced chips, tied export licenses to a 15 percent cut of sales revenue, and negotiated a deal to take a 10 percent ownership stake in Intel. 

Export-driven growth has been a cornerstone of the U.S. success in the semiconductor industry. But data show that export controls curb the industry's potential. A 2024 study by the Federal Reserve Bank of New York found that export controls resulted in "an economically significant decrease in market capitalization of $130 billion in the group of affected U.S. suppliers," only 20 days after they were imposed. The effects of export controls on suppliers include reduced revenue, profitability, and employment.

While the U.S. semiconductor industry receives just over 50 percent of global semiconductor revenues, the country's share of semiconductor manufacturing capacity has dropped from 37 percent in 1990 to 10 percent in 2022, according to a joint report by the Semiconductor Industry Association, Boston Consulting Group, and Oxford Economics. In contrast, China—bolstered by its own export controls regime and an estimated $100 billion in government subsidies—is expected to become the world's largest semiconductor manufacturing hub. 

The U.S. won't beat China by conforming to China's techno-nationalism. A better solution is the free market, where American companies can compete on price, quality, and innovation.

While framed as a national security imperative, the GAIN AI Act risks undermining the market-driven success of the U.S. semiconductor industry. This protectionism would render the U.S. chip sector less competitive and innovative—an outcome directly at odds with its stated national security goals.

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