When the Gate Slams, New Gates Open: Export Controls and the Competitor Effect

Yesterday’s post explored how Malaysia’s defiance of U.S. export controls on Huawei’s Ascend chips could send price and supply‑chain shockwaves well beyond the semiconductor sector. Overnight in Taipei, Nvidia CEO Jensen Huang added fresh fuel to that debate, calling the controls a “failure” because they have “energized” Chinese firms to accelerate their own AI‑hardware programs. 

In that spirit, I want to step back and put export controls in historical context. The cases that follow are not meant to argue for or against any specific policy—nor to judge whether the original aims were justified. Instead, they illustrate a consistent pattern: when critical technologies are blocked, markets and governments usually find work‑arounds, and those work‑arounds often mature into formidable new competitors.

Below are six well‑documented cases where export controls or embargoes pushed buyers (or whole countries) to cultivate new suppliers, invest in domestic capability, and ultimately become serious competitors to the original exporting nation.

1. Britain’s textile‑machinery ban (1790 – 1843)

To protect its early industrial lead, Britain outlawed the export of spinning frames, power looms and even the emigration of skilled mechanics. The policy back‑fired: blueprints and craftsmen were smuggled to the United States and continental Europe, seeding rival mills such as Samuel Slater’s Pawtucket factory and the Lowell mills in Massachusetts. By mid‑century, Britain had lost its machinery monopoly and repealed the ban altogether.

2. The UN arms embargo on apartheid‑era South Africa (1977 →)

Security Council Resolution 418 cut South Africa off from most foreign weapons. Pretoria responded by funding Armscor and a web of state‑owned firms (later Denel), reverse‑engineering tanks, fighters and artillery and partnering covertly with Israel. By the late‑1980s South Africa was exporting weapons and competing in niche markets such as mine‑‑resistant vehicles—capabilities born directly from the embargo.

3. U.S. ITAR restrictions on satellites & launch services (late‑1990s)

After Congress placed virtually all satellite hardware under the International Traffic in Arms Regulations (ITAR), non‑U.S. customers looked for “ITAR‑free” alternatives. Europe’s Thales Alenia Space marketed satellites built without U.S. components, and Arianespace used the episode to court customers nervous about U.S. licensing delays. The result: a sturdier European space‑hardware ecosystem and a launch competitor that still dominates many commercial missions.

4. Carter’s 1980 grain embargo on the Soviet Union

Washington halted 17 million tons of contracted grain sales after the USSR invaded Afghanistan. Moscow quickly shifted purchases to Argentina, Brazil and Australia; those suppliers expanded acreage and port capacity, establishing themselves as enduring players in global grain trade. Four decades later Brazil has overtaken the U.S. in soybean and is closing in on corn exports—a long tail traced back to the embargo.

5. Cold‑War & 1990s U.S. controls on strong encryption

Classifying cryptography as a munition capped exportable key lengths and required onerous licenses. European and Israeli firms filled the gap with indigenous crypto libraries, while Phil Zimmermann’s PGP spread outside the U.S. despite legal threats. The race for export‑compliant yet robust security accelerated open‑source and non‑U.S. commercial offerings, ultimately forcing Washington to loosen the rules in 1999.

6. Advanced‑chip controls on China (2022 – present)

Recent U.S. curbs on AI accelerators and lithography tools aimed to stymie China’s semiconductor advance. Instead, they galvanized Beijing’s subsidy programs and pushed firms like Huawei, SMIC and a roster of domestic equipment makers to close technology gaps. Nvidia’s own CEO now concedes the rules “boosted Chinese tech development” and cut the company’s China market share in half.

Take‑aways

• Substitution is a policy default. When strategic goods are blocked, the buyer’s next‑best option is rarely “do without”; it is “make or source elsewhere.”

• Time horizons differ. Export controls can achieve short‑term security goals, but the new rivals they nurture often outlast the restrictions.

• Design creep happens. To bypass controls, engineers redesign products (e.g., “ITAR‑free” satellites, 7 nm Chinese chips) in ways that permanently shift supply chains.

• The exporting country may lose leverage. Once alternate capabilities mature, the original exporter can find its market share—and strategic influence—permanently diminished.

In short, history shows that poorly calibrated or prolonged export controls risk trading immediate leverage for long‑run competition.