US Government Reaches Agreement with Nvidia and AMD over Chip Exports to China
Increased Participation of US Government in Export Activities Possible
In a significant move, the US government has reached an agreement with tech giants Nvidia and AMD regarding the export of AI chips to China. According to US Treasury Secretary Scott Bessent, this agreement could potentially be expanded to other industries over time.
The agreement stipulates that the US government will receive a 15% share of sales of AI chips from Nvidia and AMD to China. Initially, President Donald Trump demanded 20% from Nvidia CEO Jensen Huang for sales to China, but the US government eventually settled for a 15% share.
The agreement comes after a U-turn on the US semiconductor sales rules to China, which were tightened due to national security concerns. Nvidia's H20 systems were initially prevented from being delivered to China due to these rules. However, the rules were relaxed after persuasion by Nvidia CEO Jensen Huang.
The agreement is unique to the chip industry at the moment, but it could have far-reaching implications if expanded to other industries. Such an expansion could lead to significant geopolitical, economic, and technological implications, particularly in sectors intertwined with advanced technology and supply chains.
Potential Implications
The potential expansion of the US-China chip export agreement to other industries could exacerbate fears about technology transfer that might enhance China’s military or technological edge. Deals like the one with Nvidia, where the company pays a percentage of revenues from sales to China, suggest that expanded agreements might become channels of revenue and political leverage, potentially blending economic and strategic goals.
The US-China trade and tech rivalry has already fragmented global supply chains, with “friend-shoring” (shifting production to allied countries) accelerating. Expansion to other tech-centric industries could deepen this bifurcation, forcing companies to choose markets and partners based on geopolitical lines.
Overly aggressive restrictions may incentivize China to develop indigenous alternatives in AI and other technologies, which could ultimately weaken US global leadership in these fields. Tariff and trade policy dynamics could also be affected, as agreements, such as tariff pauses on various goods, indicate a willingness for temporary easing to maintain trade flows, but these remain fragile and could affect industries beyond semiconductors.
Industries Potentially Affected by Expansion
- Artificial Intelligence and AI Hardware: Given the focus on AI chips and Nvidia’s involvement, AI-related hardware, software, and cloud services could face new export rules or deals resembling the chip agreement.
- Semiconductors and Advanced Electronics: This is the core of the current export controls but may broaden to include related manufacturing equipment, materials, and system components essential for semiconductor production.
- Rare Earth Elements and Materials: China’s recent retaliatory export controls on rare earths suggest this strategic sector could see new export terms, affecting industries from electronics to defense.
- Telecommunications and 5G/6G Technologies: Given geopolitical sensitivities around telecommunications infrastructure, these industries might be next, especially with precedents like TikTok being part of trade-negotiation leverage.
- Steel and Heavy Manufacturing: The example of Nippon Steel reaching deals through political control hints that heavy industry could become involved in similar export or trade agreements.
- Software and Data-Intensive Services: Export controls could extend to certain software, AI models, or data services critical to tech ecosystems, influencing cloud computing and analytics sectors.
Summary
Expanding the US-China chip export strategy to other industries holds complex consequences: it might safeguard US interests and generate revenues but risks deepening global trade fragmentation, prompting China to accelerate its tech independence, and affecting numerous industries—AI, semiconductors, rare earth materials, telecommunications, heavy manufacturing, and software alike. The evolution of these arrangements will depend on balancing national security, economic goals, and global competition dynamics.
The potential expansion of the US-China chip export agreement to other industries could lead to technology transfer that might enhance China's military or technological edge, as deals could become channels of revenue and political leverage.
In the event of such expansion, various industries could be affected, such as artificial intelligence and AI hardware, semiconductors and advanced electronics, rare earth elements and materials, telecommunications and 5G/6G technologies, steel and heavy manufacturing, and software and data-intensive services.
