Increasing short-term cost, at the price of losing leverage in the medium/long-term. Or even ending up on the wrong side of that leverage, if SMIC (who was just handed control of China's domestic market) ends up outcompeting TSMC/Intel/Samsung.

Without sanctions noone would buy the Huawei chips.

With sanctions they get free money to develop better chips.

== sanctions backfire

I see now, the problem is that you're confusing expenses and profit. If Huawei had spent a quadrillion dollars to make the same number of GPUs, that wouldn't be an incredible sanctions backfire (look at how much money they got!) it would be an incredible sanctions success (look at how much money they spent to get what would've been much cheaper otherwise!)

I was looking at it under the assumption that the goal of the sanctions is to keep China away from beeing able to compete in AI not how much they have to pay for it.

Also the money the spend on top is mostly domestic. They can build some more powerplants to run less efficient chips. They can pay their workers and their developers to build it.

“Compete” is an economics term.

Making it cost more is keeping them from being as competitive — which is the point of sanctions.

Their customers who would have bought Nvidia chips are instead giving money to Huawei even though they prefer Nvidia. With more money, they can deliver better tech faster. It is costing these customers more, but in return, they get domestic capability with better supply chain security, and a possibility that it can eventually become cheaper than imported chips. Meanwhile, Nvidia gets less money from those lost customers.

Why not just put in import restrictions then?

Sanction motivates … import restriction discourages and may not work in reality …

Sounds like a weak argument to me, businesses are profit making entities, they certainly would be motivated to keep their profits irrespective of the cause.

China's Made in China 2025 already lays out which key industries they will go after. Semis are always a key industry for China.

Huawei already designed and developed its own chips before sanctions, and SMIC is developing their next node before sanctions.

Whether sanctions work or not is another matter

>> Huawei was going to work on GPUs anyway, SMIC was going to fab chips anyway.

Sure, but China has started dumping a lot of money into competing with ASML as a result of the sanctions. And no, they are not going the super complicated route of firing lasers at drops of tin to get EUV. They are trying to sidestep that costly complexity, and if they are successful they'll be providing equipment to the top chip producers (around the world or just their own).