Nvidia’s CEO, Jensen Huang, caused a stir recently when he announced that the company is working alongside the Trump administration to roll out a new computer chip for China. This announcement speaks volumes about the ongoing discourse on how the US should tackle China’s advancing tech scene.
Interestingly, the motivations behind these decisions have varied, with U.S. officials citing a mix of national security, human rights concerns, or straightforward economic competition. Yet, they’ve relied on one main approach: export controls or the threat thereof.
Nvidia forecasts that it could pocket around $50 billion from selling AI chips to the Chinese. However, the company has faced limitations set by the Biden administration, tracing back to agreements crafted during Trump’s presidency.
Origins of Chip Export Controls
While China operates its own chip foundries, these have typically been limited to entry-level processors for automobiles and household items. Starting in 2014, the Chinese government introduced the so-called “Big Fund,” which poured substantial investments into numerous semiconductor firms, aiming to elevate their tech game.
On the flip side, the US government initiated a series of measures during Trump’s initial term, restricting China’s access to crucial tech needed for producing chips for advanced uses like servers and AI applications.
A major point of contention arose when China was stymied from acquiring a machine from Dutch firm ASML that etches silicon chips using ultraviolet light, hindering their ability to enhance transistor performance by cramming more of them onto tiny chips.
In the spotlight was Huawei, which became synonymous with these trade disputes—I mean, accusations merged prime concerns about the brand being a potential tool for espionage within a wider struggle over economic and technological supremacy.
Trump himself commented back in 2020, saying, “We don’t want their equipment in the United States because they spy on us,” which coincided with intense efforts to prevent Huawei from leveraging chip technology. Simultaneously, he threatened to pull the plug on TikTok for similar reasons.
Biden Takes Export Controls Up a Notch
Upon stepping into office in 2021, President Biden took it further by not just retaining but ramping up these restrictions. His administration placed a ban on shipping the most advanced chip technology and manufacturing tools to China.
This shift seriously dented sales for Nvidia, renowned for laying the groundwork for specialized chips crucial for AI.
When the initial restrictions were imposed in 2022, barring products like Nvidia’s H100, the company responded by crafting a new chip that skated just under the tight restrictions.
Yet, the Biden administration acted in 2023 to tighten the screws on these chips as well, prompting Nvidia to roll out yet another new chip—the H20—that could potentially evade screening.
Trump’s Erratic Stance on the H20
In April, the Trump administration put the brakes on the sale of the H20 chip along with other advanced chips to China, citing national security woes. However, by July, both Nvidia and AMD announced that Washington allowed them to continue selling their chips designed for AI development.
Following a hefty $4.5 billion loss between February and April, Nvidia anticipated the export restrictions could tag on another $8 billion in missed sales from May to July.
This situation ignited Huang’s efforts to convince those in Trump’s circle that these constraints might actually harm US interests in the long run.
As Huang conveyed to analysts in May, “It’s not about whether China can deploy AI; it already does. The real question is whether one of the world’s largest AI markets will utilize American technology. Protecting Chinese chipmakers reduces U.S. competitiveness internationally and weakens America’s stance.”
In a notable agreement made in August, both Nvidia and AMD settled on sharing 15% of their revenues from chip sales to China with the US government in exchange for the coveted export licenses.
