‘Bizarre' Nvidia, AMD chip export deal with Trump raises legal questions

Yahoo

3 days ago

Two major chipmakers in the U.S., Nvidia and AMD, have struck an unusual agreement with the federal government to share some of their revenue from chip sales to China — a deal that experts say raises constitutional questions and may set a concerning new precedent.
The two firms have agreed to share 15 percent of the revenue generated from selling advanced artificial intelligence (AI) chips to China in order to secure export licenses after a months-long pause, a U.S. official confirmed to The Hill on Monday.
'It's bizarre in many respects and pretty troubling because Congress didn't have anything to say about this,' said Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.
'It's just the president's own negotiating with the individual companies,' he continued. 'That's not how historically we've done business in this country.'
Under the agreement, Nvidia will share 15 percent of its revenue from H20 chip sales to China, while AMD will share the same portion of its MI308 chip sales.
Both the Nvidia and AMD chips in question, which are graphics processing units (GPUs) designed for the Chinese market with U.S. export controls in mind, faced new restrictions from the Trump administration in April, effectively blocking sales to China.
Last month, Nvidia and AMD said the U.S. government had assured them it would begin approving export licenses for the H20 and MI308 chips, although the Commerce Department reportedly did not start issuing licenses for several weeks.
The new revenue-sharing agreement comes after Nvidia CEO Jensen Huang met with President Trump at the White House last week, according to Bloomberg. Huang has found himself in a tricky situation, balancing Washington and Beijing's interests as both countries vie for AI dominance.
'We follow rules the U.S. government sets for our participation in worldwide markets,' an Nvidia spokesperson said in a statement. 'While we haven't shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide.'
'America cannot repeat 5G and lose telecommunication leadership,' they added. 'America's AI tech stack can be the world's standard if we race.'
Nvidia dominates the market for GPUs, the chips powering the AI boom, fueling the company's rapid growth over the past few years. It became the first company in the world to reach a market capitalization of $4 trillion last month.
AMD holds a much smaller share of the market, although it remains a key player.
The agreement appears to remove a major impediment for both companies. Nvidia said earlier this year it incurred $4.5 billion in charges associated with the chip restrictions in the first quarter and expected an $8 billion sales hit in the second quarter. AMD forecast a $1.5 billion hit to revenue this year.
The deal represents a notable shift in how the government approaches export controls.
'It's quite extraordinary because it turns the export control function of the government into a money-raising proposition, and that's never happened before,' Hufbauer said.
The U.S. government is barred from imposing taxes on exports under both the Constitution and federal law.
'In addition to the policy problems with just charging Nvidia and AMD a 15% share of revenues to sell advanced chips in China, the US Constitution flatly forbids export taxes,' Peter Harrell, a nonresident fellow at the Carnegie Endowment for International Peace, wrote in a post on X.
'In addition to the Constitution, 50 USC 4815(c) expressly prohibits fees for export control licenses,' Harrell, who served as senior director of international economics in the Biden administration, added.
It's unclear whether the 15 percent cut from Nvidia and AMD's revenues would count as an export tax because 'it looks like the companies just decided to make this payment in order to further their business,' Hufbauer noted.
It's also not entirely clear who would have standing to challenge the move in court — an outcome Hufbauer suggested is ultimately unlikely.
Even so, the agreements with Nvidia and AMD are likely to face pushback.
The Trump administration's decision to allow Nvidia to resume H20 sales to China has already been a source of concern among both Democrats and Republicans, who have warned that it could boost Beijing's AI capabilities.
Commerce Secretary Howard Lutnick has argued the administration is only giving China Nvidia's 'fourth best' chip. This represents an approach to export restrictions, largely supported by the semiconductor industry, that chipmakers should be allowed to sell some chips to China to prevent its national champion Huawei from gaining ground.
However, the administration's latest move creates a new set of concerns.
'It raises concerns, certainly for many national security minded folks, of — are we now selling export control licenses? Is there a way that Nvidia will be able to buy licenses to sell more advanced chips than they're currently able to?' said Owen Tedford, a senior research analyst at Beacon Policy Advisors.
Stacy Rasgon, a senior analyst at Bernstein Research, underscored that it makes sense for Nvidia and AMD to take a 15 percent cut because '85 percent is better than nothing.'
However, he added, 'It feels like a little bit of a slippery slope. What's next? Where does it stop? Does it stop with China AI? Does it move to other China stuff that's under export control? In that case, sometimes there's a reason that there's export controls. Can you buy your way out of them? Strategically that's not great.'
The deals could be a 'template' that other companies facing export controls try to follow, Tedford noted.
'It's somewhat unique in the way that they only would have happened with Trump as president,' he said. 'If we'd had a Biden or Harris administration and even if you'd had the same kind of on and off of these H20 chips, this really speaks to Trump's transactional nature, his desire to get some sort of win.'
'It raises questions about how — and I think this gets to some of more general concerns with the Trump administration — just policy feels like it's for sale in some ways, like policy outcomes,' Tedford added. 'If companies are big enough or strong enough, they can basically buy the policy that they want from the Trump administration.'
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