Nvidia and Advanced Micro Devices are anticipated to remit 15 percent of their revenue from the sale of artificial intelligence chips to China to the United States under a unique financial arrangement with the Trump administration.
This agreement, which was detailed by three individuals knowledgeable about the situation who wished to remain anonymous, emerged a month after Nvidia obtained authorization to market a version of its AI chips to China.
Although the Trump administration publicly announced a month ago that it was allowing Nvidia to sell an AI chip known as H20 to China, it did not actually issue the necessary licenses for those sales to occur.
On Wednesday, Jensen Huang, CEO of Nvidia, met with President Trump at the White House and consented to provide the federal government with its 15 percent share, effectively making the federal government a business partner for Nvidia’s activities in China, according to sources familiar with the arrangement. The Commerce Department began issuing licenses for A.I. chip sales two days after this meeting, these sources added.
While Mr. Huang has been at the forefront of the discussions with the White House, Nvidia is not the sole company that supplies A.I. chips to China. AMD also offers an AI chip referred to as the MI308, which the Trump administration prohibited from being sold to China in April.
There are very few instances where the Commerce Department has agreed to issue export licenses in return for a share of profits. However, this unconventional revenue-sharing arrangement aligns with Mr. Trump’s escalating involvement in international business transactions involving American firms. In June, the administration approved Japanese company Nippon Steel’s investment in U.S. Steel under a deal that included a so-called golden share in the company, a seldom-utilized practice where the government acquires an equity stake in a business.
The administration is also leveraging tariffs as a means to encourage manufacturing within the United States. Last week, Mr. Trump stated that technology companies would face a 100 percent tariff on semiconductors produced overseas, unless they made investments domestically.
The deal negotiated last week may generate over $2 billion for the U.S. government. Nvidia was predicted to sell more than $15 billion worth of its H20 chip to China by the end of the year, while AMD was expected to generate $800 million, according to Bernstein Research.
The Commerce Department, the White House, and AMD did not offer comments on Sunday.
Ken Brown, a spokesperson for Nvidia, stated that the company adheres to U.S. government regulations regarding overseas sales. “Although we haven’t exported H20 to China for several months, we hope that export control regulations will enable America to compete in China and globally,” he mentioned.
The agreement to license A.I. chips sparked immediate backlash among national security experts who have opposed the sale of A.I. chips to China. They are concerned that the Trump administration's choice to use export licenses for profit will encourage Beijing to pressure other firms into similar agreements to ease restrictions on additional technologies like semiconductor manufacturing equipment and memory chips.
“This is a self-sabotage and will motivate the Chinese to elevate their efforts and push the administration for further concessions,” remarked Liza Tobin, who was formerly the China director at the National Security Council under both the Trump and Biden administrations. “This is the Trump strategy applied inappropriately. You’re compromising our national security for corporate gains.”
The Financial Times previously reported on the arrangement between the chip manufacturers and the Trump administration.
The decision to allow the sale of A.I. chips to China marked a significant turnaround for the Trump administration, which had prohibited such sales to China in April. The administration had restricted exports of these chips due to worries that the technology could help close the gap between the United States and China in artificial intelligence development.
The administration's change in policy regarding AI chip sales has generated division, as it bears significant consequences for the competition between the U.S. and China in advancing artificial intelligence. Nvidia's chips are considered optimal for conducting certain calculations that drive AI and outperform those provided by its Chinese competitor, Huawei.
The Trump administration has indicated that it will still block China from acquiring Nvidia’s most advanced chips. It asserted that the H20 chip, specifically designed for China and approved for sale by the Biden administration, is less powerful than the chips the company offers to U.S. businesses and allies.
Mr. Huang convinced Mr. Trump to permit A.I. chip sales by arguing that a ban would only disadvantage U.S. tech firms. He contended that a prohibition would enable Huawei to dominate the A.I. chip market in China, the largest semiconductor market globally, and invest its profits into R&D to narrow the gap with Nvidia, AMD, and others. Instead, he recommended that Mr. Trump allow Nvidia and AMD to vie for those sales so they can use the revenue generated there to grow their businesses.
“The American tech stack should serve as the global benchmark, just as the American dollar is the basis upon which every country builds,” Mr. Huang stated during a podcast recorded in July with the Special Competitive Studies Project, a think tank.
However, several national security experts concerned about China hold a different viewpoint. In July, Matt Pottinger and David Feith, both former national security officials during the Trump administration, along with 18 others possessing national security and economic expertise, sent a letter to the administration characterizing its policy shift as “a strategic miscalculation that threatens the United States' economic and military advantage in artificial intelligence.”
The group asserted that the H20 would serve as “a powerful enhancer of China’s advanced AI capabilities, rather than an obsolete chip.”
Nvidia’s achievements in Washington have led to challenges in Beijing. Recently, the Cyberspace Administration of China, the country’s internet regulator, called Mr. Huang in for a discussion regarding concerns that the H20 chip might have “backdoor security vulnerabilities.” Chinese state media has advised businesses against purchasing the H20 due to this concern.
Last week, Nvidia issued a blog post asserting that its A.I. chips do not contain back doors. The company also opposed a congressional initiative aimed at enacting the Chip Security Act, which would mandate it to monitor its chips to prevent the technology from being illegally transported to China.
“The concept of a ‘good’ secret backdoor does not exist — only harmful vulnerabilities that must be eliminated,” the company stated.
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