President Donald Trump’s agreement with two leading American producers of computer chips to take a cut of their revenue in exchange for permission to export products to China introduced a striking new tactic to his transactional trade policy.
The deals will see Nvidia, the world’s top producer of chips for AI, and competitor Advanced Micro Devices hand the U.S.government 15 percent of their revenue from selling certain chips in China.Trade and national security experts expressed concern Trump might use similar deals to wring concessions from other American tech firms or exporters.
“I imagine the C-suites of many companies and many industries around the U.S.are now evaluating the potential that this kind of approach could be used against them,” said Scott Kennedy, a longtime China expert who is a senior adviser and trustee chair at the Center for Strategic and International Studies think tank.
“It would represent a real significant break with the way the U.S.government and businesses interact with each other,” Kennedy said.
Liza Tobin, who was appointed China director on Trump’s National Security Council in 2019 and continued in that role under President Joe Biden until 2021, called the deals “a dangerous precedent.”
“These are national security restrictions on sensitive technology, and now we are basically putting them up for sale where major corporations can pay a fee and get rid of them,” she said.
Trump described the deal he struck with Nvidia during comments at a White House news conference Monday, saying that he told the company he expected something in return for permitting it to resume sales of its H20 chip in China after his government blocked exports in April.
“I said, If I’m going to do that, I want you to pay us as a country something because I’m giving you a release,” Trump said.
He credited Nvidia CEO Jensen Huang with talking him down from an initial proposal that the government take a 20 percent cut of the company’s Chinese revenue for H20 chips.
White House officials confirmed the deal also applied to AMD, which makes its own version of the AI chips, known in the industry as Graphics Processing Units, or GPUs.The deal unlocks billions of dollars in potential sales for both companies.
Nvidia previously said it would have sold about $7.1 billion worth of H20 chips in its financial quarter ending late April, but lost out on about a third of that when Trump banned exports.Under its new deal with the president, the company would have received all that revenue but owed $1.1 billion of it to the U.S.
government.
“We follow rules the U.S.
government sets for our participation in worldwide markets.While we haven’t shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide,” a spokesperson for Nvidia said Monday.Spokespeople for AMD did not return a request for comment.
After details of the Nvidia and AMD deals emerged, legal experts pointed out they appear to conflict with the U.S.Constitution, which explicitly bans government from taxing exports.
It is so far unclear where any legal challenge might come from.
Shareholders could sue the companies, alleging executives gave up potential revenue by agreeing to Trump’s deal.But the same investors might calculate it was better for the company to receive some revenue from China than to be cut off completely.
Leading industry groups often vocal on trade policy opted to stay quiet after details of the deals emerged.
The U.S.Chamber of Commerce and Semiconductor Industry Association, which have both been critical of Trump’s tariffs, on Monday did not issue statements about the deals or respond to requests for comment.
Representatives from three of the most prominent tech trade groups, the Information Technology Industry Council, Consumer Tech Association and the Computer & Communications Industry Association, also did not respond to requests for comment on Monday.
Personal diplomacy
Trump has repeatedly used trade policy and legal and political threats to shape the tech industry to his will since taking office in January, with top tech CEOs becoming regular visitors to the White House for public events and private meetings.
Shortly after his inauguration, Trump dropped a lawsuit alleging Meta had censored him online after the Jan.6, 2021 attacks when the company agreed to pay a $25 million settlement, most of which will go towards his presidential library.
Apple, Nvidia and other tech firms have announced hundreds of billions of dollars of investment into the United States after Trump has repeatedly threatened tariffs on their Asian supply chains, at rates as high as 100 percent.
The deals with Nvidia and AMD break new ground, ending years of relatively bipartisan U.S.policy on chip exports that have been dominated by national security concerns and supported by many leaders in the tech industry.
As artificial intelligence became more important to the tech industry and Pentagon, Trump’s first administration began to tighten export restrictions on selling advanced computer chips into China.Biden continued to ratchet up the controls and Nvidia responded by designing special, less powerful AI chips for China to comply with the export rules.
After further rounds of AI breakthroughs, including the debut of ChatGPT, Biden in 2024 and then Trump this year tightened export rules again, banning the China-focused chips.Trump’s in April shut down Nvidia’s sales of its H20 chip, which the company said caused it to miss out on $2.5 billion of revenue in the first quarter.AMD told investors this month that it had to write off $800 million worth of inventory.
In July, the White House reversed course, allowing companies to request new export licenses for their chips.
The loosening of restrictions came after the announcement of a trade framework between the U.S.and China, which rolled back Chinese controls on exports of rare earth minerals to the U.S.
The deals confirmed Monday by Trump and White House officials seem to have emerged from negotiations for obtaining those chip export licenses.Nvidia chief executive Jensen Huang visited the White House on Aug.
8.
The policy flip is in part the result of internal fighting among Trump’s allies, some of whom want to completely cut China off from advanced technology, while others support U.S.businesses who want to sell to Chinese firms, said a person who works closely with the administration but spoke on the condition of anonymity to avoid retribution.
Tobin, the former National Security Council official, said the shift harmed U.S.interests.“It’s short-term visible economic gain in exchange for laying out the red carpet for China to lead the world in AI,” she said.
Trump officials including David Sacks, the president’s AI and crypto czar, and some geopolitical analysts have argued that it is better for the U.S.
to supply Chinese technologists.The argument goes that allowing exports reduces the pressure on China to improve its own chips and AI technology.
Advocates for that idea point to how despite the U.S.and allies placing restrictions on Chinese telecom company Huawei, it still became a world leader in the latest generation of mobile technology, known as 5G.
“This is our chance to not make the Huawei mistake again … western companies had the lead in telecom, we squandered it, and they ended up building the global telecommunications network,” said James Andrew Lewis, a distinguished fellow at the Center for European Policy Analysis.
“Now we’re building the global data center AI network, and who would you rather have build it? Us or them?”
Some chip exporters including Nvidia have seized on this idea.“America cannot repeat 5G and lose telecommunication leadership.America’s AI tech stack can be the world’s standard if we race,” Nvidia said in its statement Monday in response to questions about the deal with Trump.
The president in his comments Monday said giving China access to Nvidia’s H20 chips wouldn’t hurt the U.S.in the AI arms race because it was an “old chip” that Chinese companies had already replicated with their own technology.In recent days, state media in China has begun to cast aspersions on the H20, suggesting it might be a security risk for Chinese companies.
But the huge demand Nvidia has reported for the chip in China suggests the country’s AI developers believe it can help them advance.
“They’re still really good chips,” said Tobin, the former White House national security official.
Chris Miller, a professor of international history at the Fletcher School at Tufts University and author of “Chip War,” a history of the geopolitics of computer chips, said it is unlikely that regaining access to American chips will slow down or stop China from developing its own domestically-produced alternatives.The country’s government has spent years subsidizing research and development in semiconductors.
“Even if China buys larger numbers of GPUs in the short run, the desire for self sufficiency remains quite strong and they’re going to keep investing to build out their own internal capabilities in the long run,” Miller said..
