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Of course it's going to backfire. China will just make their own chips and probably outpace everyone at some point. They're starting out behind, but they will catch up
That’s easier said than done, but you aren’t wrong. EUV is a huge lead, and not something to underestimate. At the same time, you can’t underestimate China’s persistence. It’s not an insurmountable obstacle, but it will take time.
In the short term, they are perfectly cable of brute forcing lots of problems with “old” lithography.