The US government just signed a climate pioneering deal. It will now take 15% of the gross revenue from Nvidia and AMD’s sales of AI-specific advanced chips to China. Beyond the specifics, this deal marks a historic shift in US-China trade relations, targeting technology specifically. More importantly, it highlights the new intersection of national security and economic interests.
In a bold move in mid-July, the US lifted its own ban on exporting advanced chips to China. This ban had been largely in place for national security purposes. Nvidia and AMD quickly responded by creating the H20 and MI308 chips exclusively for the Chinese market. Removing the ban has opened up exciting new possibilities for both companies. Now, they have the opportunity to regain their footing in one of the most important markets.
Nvidia’s CEO, Jensen Huang, has been a driving force in making this shift possible. His tireless negotiations resulted in a full restoration of the April ban on H20 sales to China. The key consensus was struck at a highly publicized meeting at the White House between the Democratic lawmakers and then US President Donald Trump. More importantly, it illustrates the fierce debates that defined US tech policy discourse.
The fiscal impact of this lawsuit settlement agreement are already huge. The US federal government stands to profit as much as $2 billion from the sale of these chips back to China. This infographic underscores just how lucrative this arrangement has been for the federal government and the tech companies who profit from it.
China is an extremely important market for both Nvidia and AMD—more so as the country pours resources into artificial intelligence (AI). China is set to invest upwards of $100 billion just this year in AI. This is a close to 50% increase over the level of spending from last year. The recently announced sales agreement largely favors Chinese companies. State and local officials love these companies, and they need advanced chips to supercharge their growth.
The US government appears to have responded to prior criticism accusing them of national security risk by focusing on the dangers of exporting advanced chips. They further promise decisionmakers that shifting to selling H20 and other commercial-grade chips won’t compromise security imperatives. While somewhat optimistic, this view is a harbinger of more productive business partnerships to come between American and Chinese companies.
The prize isn’t just measured in future dollars. It sends a clear message to other US companies that view China as a key market or supplier. Out of all the parties involved, the US government’s engagement in this deal would be the most unprecedented. This is a pivotal moment in American corporate engagement with China.
Deborah Elms, an expert in trade policy, commented on the unique circumstances surrounding this agreement:
“I suppose, generously, you could call it the flexibility of the Trump White House in responding to requests.”
This flexibility has given both parties the ability to take advantage of an agreement long considered impossible.
Furthermore, there is speculation that this chip sales deal could lead to further negotiations between Washington and Beijing, particularly concerning rare-earth elements. China maintains a stranglehold on these critical minerals, which are vital for our clean energy, defense, and emerging technologies. A successful agreement on rare-earth elements would be another win for the US government.