Nvidia chips don't belong on the bargaining table
News that Nvidia Corp will not be able to sell its customised artificial intelligence (AI) chips in China caught both the company and markets by surprise.
The disclosure came just a day after Nvidia announced a half-trillion-dollar US investment commitment that was celebrated by President Donald Trump, and followed a media report saying that chief executive officer Jensen Huang had struck a deal safeguarding the H20 chips in China over dinner at Mar-a-Lago.
The confusion represented what is now a usual day in Washington as Trump plays out his chaotic trade games and increases pressure on China to negotiate. Beijing, meanwhile, has signalled that one of its chief concerns heading into potential talks are US policies designed to suppress its modernisation.
The scene is now set for Nvidia's H20 chips, made specifically to comply with export controls, to be turned into the ultimate tariff-related bargaining point.
An exemption would please the company, which has long argued that export controls are ineffective and give a boost to domestic players including Huawei Technologies Co. And while Beijing is not backing down, access to AI chips is one thing it desperately wants.
We have seen Trump blur the lines over tech national security concerns in the past. The various export controls on Nvidia predate his tariff blitz, and are meant to hold China back in the AI race over fears that Beijing's edge could give it military or economic advantages.
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But the president has ignored similar worries before: he extended a deadline for TikTok to be banned in the US, turning the China-owned social media platform into a key leverage on tariffs.
The White House may yet roll back the crackdown on AI chips in China. Regardless, it is a timely reminder that this trade war is risking America's hard-won gains in the race for tech supremacy. Washington cannot fight on two fronts.
Access to chips and computing power has been at the core of Silicon Valley's lead over China in AI, but that gap is closing fast. Washington's tightening chip restrictions have been porous, but they have no doubt bought time.
One thing we have learnt is that they are ineffective without international cooperation. The US had to convince the Netherlands and Japan, key allies who oversee parts of the semiconductor supply chain, to get on board for these policies to have a fighting chance at holding Beijing back. But Trump's 'America First' rhetoric and tariff antagonism do not provide much incentive for joint action any more.
DeepSeek, the Hangzhou-based AI startup that surprised the world earlier this year, shows that China is not as far behind on AI software development as many in the West thought. America's key lead now remains in hardware and namely, advanced chips. But the likes of Huawei and Semiconductor Manufacturing International Corp are working around the clock to produce domestic alternatives to Nvidia's AI processors.
Some analysis suggests that these local players are just a couple of years away from creating viable home-grown Nvidia alternatives to power China's AI boom (while still having dramatically lower performance that Nvidia's top-of-the-line offerings). This means that the window for how long these export controls can still have any impact is closing fast.
Perhaps the biggest indication that these chip restrictions have slowed China's AI ambitions, even if they have not stopped it, has come from DeepSeek founder Liang Wenfeng.
In a rare interview, he said that the biggest barrier for his company was not money, but access to high-end chips. And these H20s are still in high demand: Chinese tech giants including ByteDance, Alibaba Group Holding and Tencent Holdings have reportedly stockpiled orders in the first three months of this year, in preparation for the long-rumoured crackdown.
Much of the recent coverage of the latest Nvidia curbs frame it as more evidence that multibillion-dollar dealmaking with Trump offers no guarantees of tariff reprieve. But the reality is the chip war predated this trade war, and blurring the lines risks losing both.
Nvidia's AI chips should not have been turned into pawns. But they are increasingly looking like the biggest concession Trump now has to get himself out of the chaos he has unleashed. BLOOMBERG
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