The US stock market experienced a notable decline following the Trump administration’s recent restrictions on Nvidia’s sales of advanced chips to China. This move is just one piece of a much bigger strategy. The US government has made preventing China from accessing advanced semiconductor technology a major national security goal. Nvidia’s stock fell by 7.4% immediately following the news. This drop erased $100 billion in market capitalization as the market opened today.
In the past, the US government was able to take comprehensive regulatory actions to prevent China’s access to advanced technologies. Those latest moves are still an expression of the underlying struggle between the two countries, especially over the semiconductor industry. In the agreement, the US backed down by agreeing to suspend a planned 10% tariff on Chinese exports. This measure has been in place since April 2. The Trump administration has slapped a 25% tariff on Japanese auto imports. This move represents the apex of its aggressive and sweeping trade policy.
As a result of these newly imposed trade restrictions, Nvidia will have to comply with strict licensing requirements for its H20 chip within the Chinese market. This change is likely to be felt deeply by Nvidia. It won’t just impact Nvidia’s deployment, either, as it would apply to Advanced Micro Devices (AMD), whose MI308 processor runs into the same limitations. These restrictions go beyond any particular company. More fundamentally, they represent a dangerous shift in US trade policy that has the potential to trigger far-reaching economic ramifications.
These tariffs have an immediate and outsized impact on the tech sector. In fact, Jerome Powell, chair of the Federal Reserve, cautioned that they might do little more than generate a temporary spike in inflation. This announcement is a reminder of the economic damage already caused by the administration’s reckless trade policies. The World Trade Organization (WTO) had estimated global goods trade to grow 2.7% this year – at the beginning of 2020. It recently updated its outlook, now projecting a 0.2% drop as uncertainties around international trade continue to grow and spiral.
Recent government interference has been particularly alarming to investors. Nvidia’s fall has been a contributing factor in the recent downturn of the US stock market in general. Market analysts are closely tracking these market development changes. They understand that Nvidia is the linchpin of the entire semiconductor industry and the primary barometer for the general health of the market.
Just yesterday, the US Census Bureau announced that retail sales increased a whopping 1.4% for March. This is a clear indication that consumer spending is displaying remarkable resilience, despite some headwinds. Analysts point to another major red flag. They fear that this good news may be cancelled out by the bad effects of new tariffs and trade restrictions that have been imposed since then.