R2 stock-and-flow simulation. The key structural insight: the US responds to China's capability with a perception lag, systematically producing overcorrection. No natural dampener exists — the only deflationary variable is diplomatic friction, which is itself endogenous to the system's tension level.
The US responds to China's semiconductor capability with a perception lag of 1–3 years (intelligence assessment cycles, declassification delays, analytical lag). This means US policy is always calibrated to capability that existed years ago.
The result: even a perfectly rational, proportionate US response looks like overcorrection from China's vantage point — because by the time the US responds, China has already moved beyond the capability level that triggered the response. This generates escalation without either side intending it.
As US control intensity rises, allied alignment falls — ASML export control enforcement strains Dutch-US relations; Japanese SME controls create friction; Korean firms lobby against restrictions on their China revenue.
Below ~40% allied alignment, US controls begin to lose coalition effect — China sources restricted tools from non-compliant second-tier suppliers. This partially offsets US controls, frustrating their effectiveness, which in turn drives further US escalation. A secondary reinforcing loop within R2.
| Scenario | China capability yr 15 | US control intensity yr 15 | Allied alignment yr 15 | Assessment |
|---|---|---|---|---|
| Current trajectory | ~65 | ~70 | ~45% | Contested phase. Highest instability window. |
| Negotiated ceiling | ~35 | ~30 | ~70% | Only deflation scenario. Requires diplomatic breakthrough. |
| Crisis acceleration | ~85 | ~95 | ~25% | Near-parity. Choke-point structural advantage erodes. |
| Full decoupling | ~80 | ~100 | ~20% | Maximum tension. Two parallel ecosystems. Highest material price volatility. |