If you place a major scientifically literate economy under interdiction over critical tech that you previously gave them access to, you shouldn't be surprised if they invest energy and budget in achieving a degree of self reliance.

Surely the point here is that we might see some useful competition between VLSI sources?

Aside from military uses, this tech is capable of making China a lot of money. Had negotiations not fixated on a belief only zero sum winner-loser negotiations exist, we might be talking about this differently.