Summary
Highlights
Nvidia and AMD have agreed to pay the US government 15% of their revenues from AI chip sales in China. This is not a tax or royalty, but a direct cut for permission to export restricted AI chips (Nvidia's H20 and AMD's equivalent). This deal, personally brokered by the president, breaks traditional US trade policy, which typically binary (either sell or don't sell based on national security). This introduces a new, transactional model, raising concerns about national security being for sale.
Bernstein Research estimates Nvidia's H20 sales in China could generate $23 billion, yielding about $2.1 billion annually for the US Treasury. While seemingly a win, this amount is a 'rounding error' in the federal budget. Critics argue it's a strategic blunder, especially considering the chips' military applications, and that China was already paying more to smuggle them. The deal may provide China with a discount on crucial AI chips.
The deal's legal basis is questionable. The US Constitution's Export Clause prohibits taxes on exports, and the Export Controls Reform Act forbids fees for export licenses. The administration insists it's just a 'deal,' bypassing Congress and traditional oversight. This sets a potentially dangerous precedent where national security decisions are monetized, raising questions about rule of law and accountability.
The deal transforms export controls from a strict barrier to a negotiable asset. The Nvidia H20 chip, while not for training large AI models, is excellent for AI inference, a growing bottleneck for Chinese AI companies. Granting access to these chips, especially with China's cheap energy, could significantly boost China's AI capabilities. There are also concerns about potential telemetry features in these chips, raising surveillance fears, shared by Beijing about US-designed chips.
This deal is characteristic of a 'governance by handshake' approach, where policy outcomes hinge on executive discretion and personal relationships rather than established processes. Examples include Apple's Tim Cook avoiding tariffs through investment pledges. This creates a two-tier economic system, favoring mega-corporations with White House access over smaller businesses, hindering innovation and fostering economic stagnation.
China's long-term trade strategy focuses on quiet coercion, like dominating rare earth materials by selling cheaply to gain a monopoly. Trump's approach, by contrast, marks up chip exports, inadvertently signaling China to develop its own chips. This divergence in strategy highlights different philosophies in global economic competition.
Trump's second-term economic interventions, like the Nvidia deal and the golden share in Nippon Steel, diverge from traditional Republican pro-business, deregulation policies. These moves, which involve direct executive insertion into private enterprise, are compared to leaders like Hugo Chavez, who used executive power to shape sectors for nationalistic goals. This personalization of power sets a precedent for future administrations, raising concerns about the potential for policy based on presidential whims rather than strategic coherence.