Why Trump Is Letting Nvidia Sell (Some) AI Chips to China

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1:40Bloomberg Audio Studios. Podcasts. Radio. News. For years, the U.S. government has restricted American chip companies from exporting their most advanced semiconductors to China, hoping to curb China's rapidly growing AI industry. These new rules will be announced perhaps as early as this week to essentially strengthen the export restrictions on advanced semiconductors in areas that China obviously wants to dominate. The strategy started when Joe Biden was president, and for a time, it was also embraced by President Donald Trump. Trump and his team are planning to expand efforts to limit China's tech advancements, including tougher chip curbs.

2:23But this week, Trump made a big exception. So we negotiate a little deal. The president said he would let two of the biggest U.S. chip companies, NVIDIA and Advanced Micro Devices, or AMD, sell some of their less advanced chip models to China again. But there's a catch. The companies have agreed to share 15 % of the revenue from those sales with the U.S. government. They said, if I'm going to do that, I want you to pay us as a country something. How unusual is a deal like this? Unprecedented. Joe Doe covers economic statecraft for Bloomberg. There's this national security question and this, like, pay-to-play question.

3:05I think the pay-to-play is pretty obvious, right? Oh, my gosh, are we going to have to start paying a fee to do business in China? But also, does that mean now that, like, anything's up for sale at the right price? Trump's latest move isn't just being called unprecedented. Some trade experts and U.S. lawmakers are even questioning if it's legal. This is just another example and a long line of examples how the Trump administration is using policy to generate revenue for the federal government in ways that have just never been considered before. I'm Sarah Holder, and this is The Big Take from Bloomberg News.

3:49Today on the show, inside the deal that would give the U.S. government a cut of chip sales to China, what it means for the global AI race, and for the future of free trade.

4:04If there's anything we've learned about President Trump's economic strategy, it's that even after he announces a deal, the deal's terms often continue to shift. So I asked Joe Doe to walk us through what we know and what we don't yet know about the agreement the federal government has made with two major U.S. chip manufacturers, NVIDIA and AMD. What the president has told the American people is he cut a deal with AMD and NVIDIA. And, you know, the president said, listen, these two companies have agreed with me to give us 15 percent of their revenue generated from chip sales to China. Now, specifically, it's a chip technology that's not their top of the line.

4:50It is like one of their secondary or tertiary chips. NVIDIA's lower tier chip is called the H20. The company actually developed the model specifically for the Chinese market to comply with the Biden administration's export controls. AMD has its own version, too, called the MI308. These chips are still powerful, but Trump officials have downplayed their national security implications, noting they're not as powerful as some other models. The Blackwell chips that NVIDIA makes are like the, you know, creme de la creme, the Rolls-Royce, if you will. Those Blackwell chips aren't eligible for the administration's carve-out.

5:30At least, not yet. This week, Trump signaled he would be open to future deals that allow NVIDIA to sell a less sophisticated version of the Blackwell to China. But it's a pretty stark reversal from a stance that both Trump and former President Biden have held, that in order to keep the U.S. ahead in the AI race and to prevent China from developing everything from missiles to cyber warfare capabilities, the U.S. has to hold on to its advanced chip tech. I think it goes to the basic AI kind of revolution that we're seeing. The United States is at the forefront of these AI chips. I mean, we hear it feels like every day just a nonstop news stream of, well, you know, ChatGPT and all these other AI platforms are changing work.

6:22They're changing the world. They're changing everything. And the chip technology is progressing quickly. And China isn't where the United States is. There is always going to be a concern among hawks that, well, whoa, hold on. We consider China an adversary. Why should they have their hands on technology that is ours that they could use to advance their own technologies? Right. So the U.S. government had a position before that U.S. companies should not be selling these chips to China so that China could not get ahead of us in the AI race. Yeah. I mean, we went through this during the first Trump administration, and it was like these 301 tariffs, the sectoral tariffs, right?

7:04everything trade-related for Trump during the first administration was China overproduces, it has overcapacity, which creates gluts across all industries in the world. And so we're going to shut China out of our market by putting up these high tariff barriers. So this time around, four years later, after the last Trump administration ended, those tariff barriers were pretty much still intact. And the question became like, well, how much higher can you make the barriers. The president came out on April 2nd and announced the reciprocal tariffs that, as we all remember, caused a massive freakout in global markets.

7:41And part of that was announcing these almost absurd tariff numbers on China, right, over 100 percent. And the response that we saw from China, the meaningful response two days later, was an announcement that it had put export bans on rare earth materials and importantly, these so-called rare earth permanent magnets. That became a big problem because you had aerospace companies, automobile companies, defense-related companies going to the White House and saying, we need these. And China knew this. And this became the centerpiece of the trade negotiations between the United States and China for the next few months.

8:27Our leverage in that negotiation were the chip technologies. That meant tightening export controls on all U.S. chips. U.S. companies would now need special permission to sell them to China. In other words, the Commerce Department issues export licenses on sensitive technologies that it doesn't want other nations or adversarial nations to necessarily have carte blanche access to. But over the past month, the Trump administration has started to loosen its grip. Here's Commerce Secretary Howard Lutnick on CNBC last month, right after the administration first signaled it'd be easing restrictions on certain chip sales.

9:09So we try to play that balance. We don't sell them our best stuff, not our second best stuff, not even our third best. I think fourth best is where we've come out that we're cool. So on some level, it felt like the deal to cut a deal of a 15 percent revenue was a way of saying, hey, listen, the tradeoff here is, yes, while we're giving these chips to China, let's make some money on behalf of the American people in these deals. Right. The if you will, that the tradeoff that the companies have to do to do business in China is they give us a nice little cut of that. Where is this revenue supposed to go?

9:45Don't know. Yeah. I mean, that's a great question. It's unclear where this money is going to go. I mean, I've talked to a number of experts who have spent their lives covering sovereign wealth funds. And, you know, sovereign wealth funds are like pretty straightforward, right? It's a country that generates revenue off of, you know, oftentimes like a natural resource that is highly abundant within the country. Saudi Arabia is a great example, right? So they make a lot of money off of oil production. And so where does all of that money go to? well, let's put it in a sovereign wealth fund and let's deploy that capital to invest in all sorts of other things for the benefit of the country.

10:22The United States doesn't have a sovereign wealth fund. Donald Trump, at the beginning of his term, said, let's create one. And then effectively, they kind of put it on the back burner a few months ago. But since then, all of these new revenue streams, supposed revenue streams have popped up. And the question is starting to rise, like, where will this money go? One of the biggest criticisms of this move is the potential of the Pandora's box it might open. The idea that this could open the door to other kinds of pay-to-play relationships. What are other criticisms of this move from trade experts?

10:56The export control question itself, which is export controls were always viewed by trade experts as not a part of trade negotiations. Export controls, export licenses are taken very seriously by all countries because they are built around this idea of like how much of your own intellectual property do you want to export to other nations? That is a serious concern. That has been a constant conversation among trade experts now for months because at the core of this like this AMD NVIDIA revenue share is an export control license, right? OK, so to get your licenses, you will give us a 15 percent cut.

11:38Is that legal? That's a major question. The House Select Committee on China's chairman sent us a statement in which he questioned the legality of doing this. I have heard other trade experts who said there is a way around this, which is you don't write into the actual export licenses that a cut is going to the United States federal government. It is written in the Constitution that you can't have export taxes. But it feels like talking to a number of trade experts and to a couple lawyers, it feels like you can find a way around that. And ultimately, a lot of people keep saying, hey, it's up to Congress.

12:18Like if they actually do have a problem with this, they have the ability to step in. How do you see this as part of Trump's recent record of interfering with the way companies are doing business or at least putting his thumb on the scale in these kinds of business transactions? So we have this chips situation. We have these country-level trade deals, like the EU and Japan are really good examples where there was like a quasi-fund attached to the back of it. slightly different, not a revenue generation, but like the U.S. Steel, Nippon Steel deal that kind of captured a lot of attention, an old steelmaker being bought by a Japanese company.

12:59Nippon Steel agreed in the deal to happen to give Donald Trump a golden share, him specifically, in which the president of the United States would be able to make direct decisions in corporate matters. After the break, the competing arguments over national security, why U.S. companies agreed to the president's deal to begin with, and the ripple effect it could have on other industries doing business in Trump's second term.

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15:42I've been talking to Bloomberg Economic Statecraft reporter Joe Doe about the Trump administration's deal with U.S. chip companies to allow some sales of their technology to China for a price. The original argument for expert controls on chips to China was that there were national security concerns and competition concerns, right? Have those concerns gone away, or is it just that other motivations are outweighing them? They haven't gone away. And I think at play here are different theories. So the CEO of NVIDIA has kind of argued, well, we need access to the Chinese market. We should be a player there on a competitive level and prove that we are number one, you know, that our chips are more in demand than what the Chinese semiconductor industry can produce.

16:33and let us just go toe-to-toe with them. In an interview with Bloomberg TV in May, NVIDIA's CEO Jensen Huang argued that allowing NVIDIA to sell chips in China would help deepen the country's reliance on U.S. tech and prevent Chinese competitors from getting ahead. Without American technology, the availability of Chinese technology will fail the market. And on some level, like, from purely capital market standpoint, that makes sense. But, you know, that's where politics and Wall Street can never really separate themselves. And the national security experts have a different point of view, which is like, well, it's a little more nuanced than that, right?

17:16That ignores the fact that sometimes other actors may not have capital market interests at heart, right? They may have their own ulterior motives. This is a great example of seeing the profit maximizers butt heads with the people always considering the worst case scenario. What about how China has responded to this deal? Are they eager to start buying H20 chips from NVIDIA again, for example? I mean, we had some really nice reporting from some of our colleagues who reported actually right now Chinese officials are saying to not buy these chips. And it was a question that our reporters on Bloomberg Television put in front of Treasury Secretary Besson.

18:01Hey, yeah, if you can't sell into the Chinese market, then what does any of that matter? And I mean, for NVIDIA, obviously, it seems like they want to continue to be able to sell their product to as many people as possible. But why did they agree to pay the federal government 15 percent of their revenue? Is that surprising to you? Is there any information about their thought process there? Absolutely. If any company is still going out there saying we're willing to give an X cut of our revenue generated from sales in the open market to the federal government in the United States, like that, regardless of the company, that that to me is is shocking.

18:40Why did they do it? I mean, you know, I think you'd have to leave it up to them. But the experts in the space say, listen, if you're a company and you have a big market in China and you have a president who is constantly focused on decoupling from China and cutting China out of your markets, that could be problematic. NVIDIA does have a big market in China. In the first quarter of this year, it said it made$4.6 billion in revenue from H20 chips alone. The company said it could have made$2.5 billion more in revenue if export controls hadn't been imposed at the end of April. And Joe says that could explain NVIDIA's calculus here.

19:24Are you willing to save that revenue stream by giving concessions that would otherwise be just considered insane or just have no precedent? Maybe because 85 % is still better than 0 % in the minds of these companies, right? It goes against everything that we think is true about trade and about business interests in some ways. Yeah, I guess, I mean, like, we've all taken like an eco 101 course in our lives, whether it was like in college or in high school, you probably took some sort of economics study. This is not in the textbook. Joe, I want to end by looking closer at those potential ripple effects.

20:09Treasury Secretary Scott Besant was on Bloomberg TV this week, and he said he thought this model could be used in other industries over time. Is it unique to NVIDIA and AMD or is this a model for other companies? I think we could see it in other industries over time. I think right now this is unique, but now that we have the model and the beta test, why not expand it? What kinds of industries do you think the administration might try to replicate this approach with and what are the implications? I have already heard at least one source saying that they had had a client reach out to them asking if they should be concerned about a fee or a pay to play.

20:50And I don't want to get into what the market was, but it was definitely not in the chips space. And it definitely wasn't even in a space that like most people would think about on a daily basis. But if if somebody in a rather niche market is asking that question, I mean, that's like, wow, you know, that's kind of wild to me. I had a source say to me, you know, the slippery slope is the question for anybody, you know, on the trade space. Right. So in commerce, do you suddenly have a situation where companies that are trying to get meetings with trade agencies within the United States government?

21:27Do they have to pay a fee to get those meetings, to have those conversations? Is there a question about defense contracts? Do you suddenly have to worry about the bidding process where there's going to be an ask on behalf of the federal government that to get a contract, you have to give something in return for that? These are all hypotheticals, right? This is not happening. I want to be clear about that. But like those are the questions that come to mind. And I think that you're going to see companies begin to try to figure out themselves as the days move forward.

22:07This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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