“The whole point of the policy is to kneecap China’s AI and HPC efforts, at least those related to the military, with the commercial side collateral damage from the US government point of view,” said Douglas Fuller, an expert on the Chinese semiconductor industry at Copenhagen Business School.

Even some of China’s largest technology companies such as Alibaba and Baidu are thought to be vulnerable. “[Their] whole research and development progress will be slowed down,” said Counterpoint’s Wang.

As the Chinese semiconductor market by end user now accounts for nearly a quarter of global demand, foreign suppliers are also set to take a hit.

The biggest question is how China responds. “We’re in a negative cycle where the US continues to push for restrictions, which pushes the Chinese to strive for technological independence, which in turn pushes the US towards harsher restrictions,” said an industry insider in Beijing.

But Beijing’s levers are limited. “This will propel the Chinese to look for alternatives but with the acknowledgment that alternatives to US technology are decades away,” the person said.

This dire situation could lead to more intellectual property theft. As some equipment now under export controls is already used in China, Beijing could ignore intellectual property rights and reverse-engineer the machinery to strengthen local equipment makers, said Lam at CCS. He added: “We may be shooting ourselves in the foot.”