Proliferation of something doesn't mean it's dominant. Android has the dominant global market share, but Apple makes all the money.

W.r.t the United States government and its people restricting sales of the most advanced chips form Nvidia there are two realistic conclusions you can draw (neither of which result in SMIC and/or Huawei "obliterating" anyone):

1. China is behind and needs to catch up, and the way to do that is through subterfuge to get more chips imported into the country. In other words, they can't match Nvidia + American tech stack for the foreseeable future.

2. China can "just catch up", which begs the question why they don't have their own Nvidia already, and so it doesn't matter whether the US restricts the sale or not other than maybe a few billion dollars in lost sales to a few companies which isn't really relevant.

With respect to Chinese electric cars and the American market, the American market is highly profitable and while we don't have great EVs we also don't really need them for anything, and while China maintains a stranglehold on rare earth mineral processing we can't put ourselves in a position where an adversary can effectively shut down our auto industry and leave us in a bad position. Of course there are existing single points of failure, chokeholds, and things like that, but there's no need to add fuel to the fire.

Most Chinese automakers are not competitive, the Chinese auto market is slowing down, and many of the automakers are operating on state subsidies and have built factories which are not able due to lack of demand to produce the volumes of vehicles that were expected. American strategy (and soon European strategy) to limit imports of Chinese vehicles results in a resounding win for union jobs, stability of American, European, Japanese, and Korean automakers, and uses what I'll describe as a judo move (using your opponents strengths and momentum against them) to harm the Chinese economy and their goal of instituting mass manufacturing overcapacity.