- The White House confirmed an export deal that grants China access to two U.S. chip makers for a share of revenues.
- Critics say advanced chips, used for AI software development, could aid Chinese military programs.
- Nvidia and AMD agreed to pay 15% of their revenues to the U.S. government for export licenses to sell AI chips to China.
In an “unusual” deal confirmed by the White House on Monday, advanced microchip makers Nvidia and AMD have agreed to pay the U.S. government a portion of their revenues from sales of artificial intelligence chips to China.
The two U.S. semiconductor companies agreed to part with 15% of their revenues in exchange for export licenses that will allow Nvidia and AMD to sell, respectively, their H20 and MI308 chips in China. The agreement re-opens trade between the U.S. manufacturers and the Asian superpower.
Sales of the advanced chips to China, which are used to power AI software tools, had been halted since April amid simmering trade tensions between the U.S. and China as well as security issues. A temporary U.S.-China trade agreement is set to expire Tuesday. News of the new export deal is sparking concerns among some industry watchers about pay-to-play trade deals between the U.S. government and individual private companies.
Nvidia says the arrangement will help the U.S. remain competitive in the emerging, and highly profitable, realm of artificial intelligence software development.
“We follow rules the U.S. government sets for our participation in worldwide markets. While we haven’t shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide,” Nvidia said in a statement. “America cannot repeat 5G and lose telecommunication leadership. America’s AI tech stack can be the world’s standard if we race.”
Will U.S. chips aid Chinese military applications?
In a recent letter to Commerce Secretary Howard Lutnick, a group of security experts registered concern that sales of advanced microchips to China represents economic and national security risks to the U.S.
“We write to express our deep concern over the recent decision to resume exports of Nvidia’s H20 chips to China,” the July 28 letter reads. “As policymakers and professionals with a background in national security policy, we believe this move represents a strategic misstep that endangers the United States’ economic and military edge in artificial intelligence (AI) — an area increasingly seen as decisive in 21st-century global leadership."
Both Nvidia and AMD had announced earlier in July that chip exports to China were set to resume but, according to a report from CNBC, neither company made mention of a revenue-sharing export deal at the time.
Share prices of Nvidia stock and AMD stock were up modestly as of midday Monday but market experts note the export deal could be worth billions of dollars in new business for the companies.
“From an investor perspective, it’s still a net positive, 85% of the revenue is better than zero,” Ben Barringer, global technology analyst at Quilter Cheviot, told CNBC. “The question will be whether Nvidia and AMD adjust their prices by 15% to account for the levy, but ultimately it’s better that they can sell into the market rather than hand the market over entirely to Huawei.”
Huawei Technologies is a Chinese company that designs, manufactures and sells telecommunications network equipment and devices. It was placed on the U.S. trade restrictions list in 2019.
While the Nvidia and AMD microchips are advanced enough to quickly train large language AI models, both are useful for inference functions, or the processes by which models that have already been trained can draw conclusions from new data, according to a report from the Wall Street Journal.
And that functionality is enough to advance applications that may be used by China’s military, according to the letter sent to Lutnick.
“Chips optimized for AI inference will not simply power consumer products or factory logistics; they will enable autonomous weapons systems, intelligence surveillance platforms, and rapid advances in battlefield decision-making,” the letter reads. “By supplying China with these chips, we are fueling the very infrastructure that will be used to modernize and expand the Chinese military. The line between optimizing an online marketplace and optimizing military logistics does not exist in the Chinese system — and we should not pretend otherwise."
Barringer noted that while the export deal in exchange for a share of revenues was strange, it typified the approach the president has taken in re-defining U.S. trade strategy.
“It’s a good development, albeit a strange one, and feels like the sort of arrangement you might expect from President Trump, who is a dealmaker at heart,” Barringer said. “He’s willing to yield, but only if he gets something in return, and this certainly sets an unusual precedent.”