Nvidia AMD Face US Fees For Chip Sales

The Price of Progress: US Demands 15% of China Chip Sales from Nvidia and AMD

In a move that redefines the intersection of commerce and national security, the United States has imposed an unprecedented condition on chip giants Nvidia and AMD. The American technology firms must now remit 15% of their revenues from specific chip sales in China to the American government. This arrangement, a prerequisite for securing the export licences needed to sell to the vast Chinese market, has sent shockwaves through the global technology sector and sparked intense debate in Washington. The policy introduces a transactional element to export controls, which have historically been absolute.

An Unprecedented Agreement

The deal stipulates that Nvidia must give a 15% portion of its earnings from H20 processor sales in the Chinese market. Similarly, AMD is required to turn over 15% of the income from its MI308 processor sold inside the nation. This is a profound departure from traditional export control mechanisms, which typically involve outright bans or strict licensing requirements without direct financial kickbacks to the government. The measure is designed as a strategic tool, allowing US firms to maintain a foothold in a critical market while financially benefiting the US treasury and, in theory, keeping Beijing dependent on American hardware

Washington’s Evolving Controls

This new policy did not emerge from a vacuum. It follows years of escalating restrictions on technology exports to China. The government under President Biden significantly tightened controls in October 2022, prohibiting the transfer of high-end AI accelerators like Nvidia’s A100 and H100 chips. These rules were expanded in 2023 to cover even slower chips, effectively cutting off Chinese firms from the most powerful tools for developing artificial intelligence. This regulatory pressure directly led to the creation of specialised, less powerful chips created with the Chinese marketplace in mind.

Nvidia’s Compliant Chip: The H20

Nvidia’s H20 is a direct result of these American export restrictions. It is a modified version of the company’s far more powerful H100 accelerator. To comply with US regulations, Nvidia reduced the chip's core count and lowered its peak throughput. However, the H20 retains a substantial 96 gigabytes of high-bandwidth memory, making it attractive for AI applications. While it is significantly slower than its top-tier siblings, it offers seamless integration with Nvidia’s dominant CUDA software ecosystem, giving it a strong competitive edge within the Chinese marketplace.

AMD’s Rival Processor: The MI308

AMD has also developed a specialised chip, the MI308, to navigate the US export rules. This processor is a detuned version of the more capable MI300X. Its primary advantage is its large memory capacity, which can reach up to 192 gigabytes, making it well-suited for training large language models. Although it requires more effort to adapt existing software to its ROCm open-source platform, it offers Chinese companies an alternative to Nvidia’s proprietary ecosystem, appealing to those seeking to diversify their hardware suppliers and avoid vendor lock-in.

Security Experts Express Deep Concern

The decision to permit these sales, even with the 15% levy, has alarmed many national security professionals. A coalition of specialists, some of whom were officials in the initial Trump presidency, recently penned a letter expressing their profound concerns. They argued that even these downgraded chips represent a significant enhancement of China’s AI capabilities. Their fundamental point is that the processors will inevitably find their way into military and intelligence applications, regardless of their initial civilian buyers. The experts view the technology as a direct enabler of Beijing’s strategic ambitions.

A Powerful Catalyst for Beijing's Goals

The letter from the security experts characterized Nvidia's H20 chip as a significant driver of China's AI progress. Their warning underscored that chips optimised for AI will do more than just enhance consumer electronics or make factory operations more efficient. Instead, they will be instrumental in creating self-governing weaponry and advanced spying systems. Moreover, this tech might spur quick progress in military command choices, directly challenging the military and strategic advantage currently held by the United States and its allies.

Image Credit - Hans India

Trump Administration's Response

The American leader, Donald Trump, openly cast aside these urgent security worries. He described the specific H20 semiconductor as "old" technology, suggesting it poses little threat. This response signals a potential willingness to prioritise economic agreements and revenue generation over the stark warnings of security hardliners. During a press conference, the president recounted his direct negotiation with Nvidia's CEO, Jensen Huang. He stated that he initially requested 20% for the country before settling on the 15% figure, framing it as a deal he brokered for the nation's benefit.

Industry Reacts with Alarm

The reaction from the broader US business and policy community was one of astonishment and trepidation. On digital platforms, investors and commentators swiftly branded the deal a "shakedown." Critics argued that it sets a dangerous precedent, blurring the lines between national security policy and commercial enterprise. Christopher Padilla, a former top export control official, described the deal as "unprecedented and dangerous," suggesting it resembled "bribery or blackmail, or both." The move has prompted basic inquiries into the government's method for overseeing private business in the name of national security.

A Constitutional Predicament

Legal scholars immediately questioned the constitutionality of the 15% levy. America's Constitution, in its first Article's ninth Section, clearly prohibits export duties. A previous official from the National Security Council, Peter Harrell, was among the most prominent voices arguing that the arrangement is a clear violation of this clause. While the payment is structured as a condition of a licence rather than a direct tax, courts have previously struck down measures that place a direct burden on the process of exporting, regardless of their official name.

A Perilous New Precedent

Beyond the constitutional questions, policy experts worry about the long-term implications. Deborah Elms, who specializes in trade policy for the Hinrich Foundation, noted that a security threat cannot be neutralised by a financial payment. Her comments capture a central critique: if the technology is truly dangerous, it should be banned outright. Allowing sales in exchange for revenue suggests that national security has a price tag. This approach risks eroding the credibility of US export controls, which have traditionally been presented as an instrument of national security, not a tool for revenue generation.

Nvidia’s Calculated Compliance

Nvidia, for its part, has navigated the situation with a carefully worded statement. The company affirmed its commitment to following the rules set by Washington for its participation in global markets. A spokesperson added that while the H20 processor has not been sent to China for a number of months, the firm is optimistic that new regulations will permit America to operate competitively on a global scale. In private, CEO Jensen Huang has undertaken months of vigorous advocacy, including a recent meeting with President Trump, to restart selling to the lucrative Chinese market.

The Steep Cost of Market Entry

This unique deal highlights the exceptional expenses and difficulties tech companies encounter during rising international political friction. An analyst from the global research company Forrester, Charlie Dai, called the agreement "unprecedented." He pointed out that it results in significant monetary strain and a doubtful future, impacting all tech suppliers, not only Nvidia and AMD. Firms must now balance the huge benefit of entering the market with the erratic and frequently costly requirements of governments navigating a new era of tech-centric great power competition.

China’s Official Rebuke

Beijing has consistently disapproved of Washington's application of export restrictions. The government in Beijing has charged the American administration with misusing its control policies and partaking in one-sided intimidation. These statements portray the US actions as protectionist measures designed to stifle China's technological and economic rise rather than as legitimate national security precautions. The new 15% levy is likely to be viewed by Beijing as further evidence of this, representing a direct and arbitrary financial extraction from normal commercial activity.

The Intel Entanglement

The agreement with Nvidia and AMD occurred during a different dispute that involved Intel, a competing chip manufacturer. Lip-Bu Tan, the company's CEO, had a meeting with President Trump in the White House on a Monday. That discussion was reportedly strained, happening soon after the president had openly demanded Tan step down. This request was connected to the executive's supposed financial connections in China. The episode highlights the intense political scrutiny that technology executives now face regarding their operations and investments in China.

Allegations and Denials

On a social network, President Trump had alleged that Lip-Bu Tan had a significant "conflict of interest." This statement seemed to point toward claims of financial stakes in firms Washington has connected to China's armed forces. Mr. Tan disputed these allegations directly, declaring them to be "misinformation" in a public statement. This public dispute between the White House and the head of one of America's most important technology companies illustrates the volatile environment in which these firms must operate, where business decisions are increasingly viewed through a geopolitical lens.

A "Candid" White House Dialogue

Intel characterized the conversation between its chief executive and the president as "frank and helpful." A corporate release confirmed Intel's dedication to reinforcing America's top position in tech and production. On his social media site, Truth Social, President Trump later remarked the discussion was "quite engaging." He also mentioned that Mr. Tan would work with his cabinet to develop proposals for his review in the coming days, suggesting a potential path to resolving the dispute.

Image Credit - Bilyonaryo

The Wider Tech Cold War

These events are merely the latest skirmishes in a broader technological and economic conflict between the US and China. This rivalry extends far beyond semiconductors. It includes pitched battles over the global deployment of 5G telecommunications infrastructure, where companies like Huawei have been targeted by extensive US sanctions. It also involves disputes over the control of data and influence through social media platforms such as TikTok. The chip war is a critical front in a global contest for technological supremacy.

The Global Race for AI Dominance

Nvidia has clearly positioned the necessity of operating in China as vital for America's overarching dominance in AI. A corporate communication cautioned that the nation must not re-experience the loss of its top role in telecommunications, as happened with 5G. This viewpoint implies that sustaining a foothold within the Chinese marketplace, even under restrictive conditions, is crucial for setting global technology standards and staying ahead of foreign competitors. The current struggle over AI chips is seen as a decisive battle in determining which nation will lead this transformative technology.

An Uncertain and Contentious Future

The 15% levy represents a new and contentious chapter in US-China relations. It introduces a transactional logic to a domain previously governed by absolute security red lines. The policy has created deep divisions, pitting economic realists against national security hawks and raising fundamental legal questions. It remains unclear how the revenue will be used or whether this model will be applied to other industries. The only certainty is that the path forward for global technology companies is now more complex and fraught with peril than ever before.