The U.S. government is about to be Nvidia’s business partner in China.
Suggested Reading
The major chipmaker recently struck a profit-sharing deal with the Trump administration to send over 15% of the revenue gained from sales of its H20 microchip, one that’s geared towards the Chinese market and meant to power AI systems. The agreement also included Advanced Micro Devices, a Nvidia competitor.
Related Content
Trump on Monday sought to downplay the capabilities of the H20 chip, calling it an “old chip” that’s far from cutting-edge. The president said he negotiated with Nvidia chief executive Jensen Huang after initially seeking a 20% cut of its Chinese chip sales “for the country.”
The arrangement, though, has raised eyebrows among trade and security experts who are concerned about the transactional nature of a U.S. firm buying off access into a foreign adversary’s market with U.S. national security taking a backseat.
“It undercuts the whole idea of export controls, which are supposed to be premised on national security,” said Evan Feigenbaum, a former Bush administration official who’s now an Asia expert at the Carnegie Endowment for International Peace. “If the government waives these in exchange for payoff, then the government is signaling that ‘national security’ is negotiable and up for bidding.”
Others argued that the Nvidia deal sets the stage for the Chinese government to narrow the AI gap. “China’s lack of unfettered access to U.S.-designed AI chips is America’s clearest advantage in the AI race,” Matthew Pottinger and Liza Tobin, a pair of former Trump national security officials, wrote in a Free Press op-ed. “By reversing the ban, the White House is helping Beijing’s Communist regime close the gap.”
The White House on Tuesday also didn’t close the door to replicating the deal for other firms. “The legality of it, the mechanics of it, is still being ironed out by the Department of Commerce,” said White House Press Secretary Karoline Leavitt at Tuesday’s daily press conference. “This was another idea of the president and his brain trust on his trade team to try to get good deals for the American people.”
Other administration officials shrugged off lingering worries about China accessing advanced U.S. technology. “There are no national security concerns,” Treasury Secretary Scott Bessent said in a Bloomberg TV interview, adding they don’t want Chinese AI chips to become the global standard either.
The Commerce Department didn’t respond to a request for comment about the timeline of implementing the profit-sharing deal. Nvidia has said in a statement that they “follow rules the US government sets for our participation in worldwide markets.”
The Trump administration is still negotiating with Beijing on a raft of other issues, including resolving a standoff on trade and landing a possible TikTok sale. Some Democrats questioned how the White House would treat other matters where U.S. national security and economic interests were at stake.
“So now the US government is financially motivated to sell AI to China?” Democratic Rep. Jake Auschincloss wrote on X. “Makes me shudder to think what a TikTok deal might look like.”
Even some Republican lawmakers started to express reservations. GOP Rep. John Moolenaar of Michigan, who chairs the House Select Committee on the Chinese Communist Party, said in a statement that he was “concerned” by the development and questioned whether it was legal. “We should not set a precedent that incentivizes the Government to grant licenses to sell China technology to enhance its AI capabilities,” Moolenaar said.
The Trump administration initially slapped a ban on Nvidia’s semiconductor sales without an export license in April. But it backtracked three months later after heavy lobbying by Huang, who doesn’t share a combative view towards Beijing like the national security hawks in Washington.
Nvidia earned $17 billion in China last year, around 13% of its total annual revenue. In its quest to preserve its foothold in the lucrative Chinese semiconductor market, Nvidia may trigger blowback for appearing too close to the Trump administration. The Chinese government is pressing domestic, private companies, and state-owned enterprises to justify their purchases of Nvidia’s H20 chips and warned against using them, Bloomberg reported.
Indeed, Trump’s Nvidia deal could quickly crash into constitutional and other legal obstacles at home before it ever comes to fruition. The Constitution bars the federal government from imposing export taxes on U.S. goods. Peter Harrell, a former Biden administration trade official, pointed out that a 2018 federal law explicitly prohibits fees for export licenses. It was signed by President Trump in his first term.
Trump, though, has muscled ahead in increasingly steering the U.S. economy on a path that fits his nationalist agenda, most notably by imposing a barrage of tariffs on imports from almost every country in the world. Now, a tax on some U.S. exports might be in the cards.
On Monday, Trump suggested he’d be open to allowing Nvidia to sell a downgraded version of its most advanced Blackwell chip in China — as long as the federal government can take a cut of those sales too.
Feigenbaum argued that the Nvidia deal comes at the expense of smaller businesses that are simply unable to offer similarly-sized profits to the U.S. government. “That’s anti-competitive,” he said, “which is ironic for a supposedly ‘conservative and ‘free market’ administration, since it favors rich and big firms while pulling the rug out from under smaller ones.”