Trump’s unprecedented deal with Nvidia and AMD: A new era of U.S.-China tech relations

• The Trump administration allowed Nvidia and AMD to resume AI chip sales to China in exchange for 15 percent of revenue paid to the U.S. government, enabling exports of advanced chips like Nvidia’s H20 and AMD’s MI308.
• Initially, stocks dipped slightly, but analysts view the deal as a net positive, ensuring continued access to China’s lucrative market, retaining 85 percent of revenue rather than losing it entirely.
• China has mixed reactions, welcoming access to advanced chips but criticizing U.S. economic leverage. State media condemned the move as undermining security justifications for controls.
• U.S. lawmakers warn the deal sets a dangerous precedent, signaling that security concerns are negotiable. Legal experts question its constitutionality, debating whether it resembles an “export tax.”
• The deal could influence future tech-sector negotiations but is unlikely to extend to other industries. It raises long-term concerns about U.S. competitiveness and the blending of economic/security policies.

In a move that has sparked widespread debate and uncertainty, the Trump administration has struck a deal with leading semiconductor companies Nvidia and Advanced Micro Devices (AMD). The deal allows them to resume sales of advanced AI chips to China in exchange for the U.S. government receiving a share of the revenue.

This unprecedented agreement, confirmed by the White House on Monday, Aug. 11, has raised questions about its implications for the tech industry, national security and U.S.-China relations. Under the agreement, Nvidia and AMD will pay 15 percent of their revenue from chip sales in China to the U.S. government.

In return, they will receive export licenses to sell their specialized chips – Nvidia’s H20 and AMD’s MI308 – in the Chinese market. This arrangement marks a significant shift in U.S. policy, as it introduces a transactional element to export controls, which have traditionally been non-negotiable for national security reasons.

In a statement to NBC News, Nvidia emphasized its commitment to following U.S. government rules while expressing hope that the new export control rules would allow American companies to compete in China and globally. Meanwhile, AMD confirmed that its initial license applications to export MI308 chips to China have been approved. (Related: Nvidia wins U.S. approval to sell AI chips to China after Trump administration reverses ban)

The news initially caused shares of both companies to close moderately lower on Monday, Aug. 11. However, analysts like Ben Barringer from Quilter Cheviot believe the deal is a net positive for the companies.

“From an investor perspective, it’s still a net positive, 85 percent of the revenue is better than zero,” Barringer told CNBC. The agreement ensures that these companies can continue to tap into the lucrative Chinese market, which is crucial for their growth and competitiveness.

Geopolitical implications and China’s response

The deal has stirred mixed feelings in China. On one hand, Chinese firms are eager to acquire these advanced chips to bolster their AI capabilities.

On the other hand, the arrangement is seen as an economic lever by the U.S. government. Washington has raised concerns about potential security vulnerabilities and “backdoors” in the chips. While Nvidia has denied these allegations, the skepticism remains.

Chinese state-run newspaper Global Times criticized the U.S. approach, stating that it undermines the original security justification for export controls and instead uses economic leverage to pressure U.S. chipmakers. The Chinese government has yet to officially comment on the revenue-sharing agreement.

At home, the deal has drawn sharp criticism from U.S. lawmakers and experts who warn that it could set a dangerous precedent. Rep. John Moolenaar (R-MI) expressed concern that the agreement could incentivize the government to grant licenses for selling technology that enhances China’s AI capabilities.

Rep. Raja Krishnamoorthi (D-IL), the ranking Democrat on the House Select Committee on China, also echoed the sentiment. “By putting a price on our security concerns, we signal to China and our allies that American national security principles are negotiable for the right fee,” he warned.

Trade lawyer Jeremy Iloulian noted that the U.S. Constitution prohibits Congress from levying taxes on exports, raising doubts about whether the revenue share could be considered an “export tax.” Kyle Handley, a professor at the University of California San Diego School of Global Policy and Strategy, described the arrangement as an “export tax” in disguise.

The agreement with Nvidia and AMD is seen as a unique case, given the strategic importance of semiconductors. Analysts do not expect similar deals to be extended to other sectors like software and services. However, the move has set a precedent that could influence future negotiations involving strategic technologies.

Daniel Newman, CEO of The Futurum Group, described the arrangement as a “sort of ‘tax’ for doing business in China,” suggesting that it could pave the way for similar agreements in other industries.

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Sources include:

CNBC.com

ABCnews.go.com

GlobalTimes.cn

Reuters.com

Brighteon.com