Nvidia's H20 Chip Export to China: A Complex Geopolitical and Technological Dilemma

China isn't welcoming Nvidia back with open arms after Trump clears way for H20 exports

Beijing is signaling to its tech firms that they must continue to support local AI chip companies, experts say.Nvidia secured what was seen as a major win last month when the U.S. government announced it would allow it to resume sales of its made-for-China H20 chip. But it has since become clear that Beijing wont be rolling out the red carpet. Despite the U.S. softening on chip export controls -- which Beijing has long opposed -- Nvidia is being welcomed back under increased distrust and scrutiny. On Tuesday, Bloomberg reported that China had urged companies against using Nvidia's H20 chips, or those from Advanced Micro Devices , especially for government and national security use cases, citing sources familiar with the matter. In response to the report, Nvidia said in a statement that the H20 "is not a military product or for government infrastructure," and that banning the sale of H20 in China would only harm U.S. economic and technology leadership with zero national security benefit. In a separate report , The Information said regulators in China had gone so far as to order major tech companies, including ByteDance, Alibaba and Tencent, to suspend Nvidia chip purchases altogether until the completion of a national security review. "We're hearing that this is a hard mandate, and that [authorities are actually] stopping additional orders of H20s for some companies," Qingyuan Lin, a senior analyst covering China semiconductors at Bernstein, told CNBC. The news comes just weeks after Nvidia was summoned by Chinese officials over security concerns regarding potential tracking technology and "backdoors" in their chips. It also throws a wrench into Nvidia's plans to maintain market share in China, as CEO Jensen Huang tries to navigate his business through increasing tensions and shifting trade policy between the U.S. and China. Beijing's probe into Nvidia comes after the House and Senate proposed laws that would require semiconductor companies like Nvidia to include security mechanisms and location verification in their advanced artificial intelligence chips. Nvidia has denied that any such "backdoors" that provide remote access or control exist. According to chip industry analysts, however, the actions against Nvidia also highlight that Beijing remains steadfast in chip self-sufficiency campaigns and is likely to resist the Trump administration's plan to keep American AI hardware dominant in China. "It is signaling to Chinese tech firms that they must continue to support Huawei's AI development, even if Nvidia's chips are better," Chris Miller, author of "Chip War: The Fight for the World's Most Critical Technology," told CNBC. Building its domestic supply chain China has long had the desire to build up a self-reliant chip supply chain, and many experts say those efforts have been accelerating since chip export restrictions first took effect in October 2022. While China's domestic GPU (graphics processing unit) companies remain behind Nvidia in both scale and advancement, they have been beneficiaries of massive state funding and restrictions on Nvidia's most advanced chips. Reva Goujon, a director at Rhodium Group, told CNBC that Beijing appears to be trying to tackle constraints to the local adoption of Chinese-made chips -- based on regulators' questions about the H20s that were posed to local AI developers. Although that remains a serious challenge, "it's even more top of mind now that you have U.S. Cabinet officials openly broadcasting a strategy to get China more addicted to U.S. technologies," she added. When the resumption of H20 exports was first announced in July, a Trump administration official had presented the policy as a trade concession. However, in following weeks, the administration has indicated that the move is also part of a strategy to keep China's AI built on U.S. technology. Trump is also working on a deal that's expected to see Washington take a 15% cut of Nvidia's business in China. Not an all-out ban Still, despite Beijing's show of resistance to the H20s, experts doubt that Beijing will block their imports in a meaningful way, at least for now. "It's not likely the Chinese government will maintain a ban. After the investigation is finished, I don't think it has a strong rationale to actually block the H20s," said Bernstein's Lin. However, he added that it's unclear how long the investigation will last, and that delays to the H20's return could create more room for local players as AI companies search for alternatives. Companies such as Huawei are designing their own GPUs for the China market. Ray Wang, research director for semiconductors, supply chain and emerging technology at Futurum Group, said recent moves by Beijing are likely meant to send a message that the H20s present a potential security concern, and the government will be monitoring their use very closely. "This could impact some customers' long-term purchasing decisions," he added. In the meantime, assuming the H20 chips are allowed back in the market, they are expected to benefit local AI developers as they wait for the domestic industry to continue to advance. "There is meaningful demand for the H20 in China today," semiconductor research and consulting firm SemiAnalysis said in a note on Tuesday. Huawei, despite an aggressive boost to production, is still unable to meet all of China's inference demand, they added. While China has been making big strides in chip design, its supply of advanced GPUs remains constrained by existing export controls on the world's most advanced chipmaking equipment. "Access to US technology can still be valuable when Chinese AI developers and chipmakers are experiencing these growing pains under compute constraints, but Beijing wants to ensure the roadmap is still driving toward self-reliance in the end," said Rhodium's Goujon. Meanwhile, there are signs that Washington may take more steps to keep U.S. chips dominant in the Chinese market. On Tuesday, Trump said he was open to extending the chip approvals to companies aside from Nvidia and AMD. He also signaled he would allow Nvidia to sell a less powerful version of its latest Blackwell chip to China.

The Nvidia chip deal that has Trump officials threatening to quit

Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy. Whatever else can be said about the second Trump administration, it is always teaching me about parts of the Constitution I had forgotten were even in there. Case in point: Article I, Section 9, Clause 5 states that "No Tax or Duty shall be laid on Articles exported from any State." This is known as the export clause, not to be confused with the import-export clause (Article I, Section 10, Clause 2). The Supreme Court has repeatedly held, most recently in 1996's US v. IBM, that this clause bans Congress and the states from imposing taxes on goods exported from one state to another or from the US to foreign countries. I found myself reading US v. IBM after President Donald Trump announced an innovative new deal with chipmakers Nvidia and AMD. They can now export certain previously restricted chips to China but have to pay a 15 percent tax to the federal government on the proceeds. Now, I'm not a lawyer, but several people who are lawyers, like former National Security Council official Peter Harrell, immediately interpreted this as a clearly unconstitutional export tax (and as illegal under the 2018 Export Control Reform Act, to boot). At this point, there's something kind of sad and impotent about complaining that something Trump is doing is illegal and unconstitutional. It feels like yelling at the refs that the Harlem Globetrotters aren't playing fair; of course they aren't, no one cares. The refs are unlikely to step in here, either. The parties with the standing to sue and block the export taxes are Nvidia and AMD, and they've already agreed to go along with it. Maybe the best we can do is understand why this happened and what it means for the future of AI. While AMD is included in the deal, for all practical purposes, the AI chips in question are being made by Nvidia -- and the main one in question is the H20. As I explained last month, the H20 is entirely the product of US export controls meant to limit export of excessively powerful chips to China. Nvidia took its flagship H100 chip, widely used for AI training, and dialed its processing power (as measured in floating point operations per second) way down, thus satisfying rules restricting advanced chips that the Biden administration put in place and Trump has maintained. At the same time, it dialed up the memory bandwidth (or the rate at which data moves between the chip and system memory) past even H100's levels. That makes the H20 better than the H100 at answering queries to AI models in action, even if it's worse at training those models to start with. Critics saw this all as an attempt to obey the letter of the export controls while violating their spirit. It still meant Nvidia was exporting very useful, powerful chips to Chinese AI firms, which could use those to catch up with or leap ahead of US firms -- precisely what the Biden administration was trying to prevent. In April, the Trump administration seemed to agree when it sent Nvidia a letter informing it that it would not receive export licenses for shipping H20s to China. Then, in July, reportedly after both some bargaining with China over rare earth metals and a personal entreaty from Nvidia founder and CEO Jensen Huang, Trump flip-flopped; the chips could go to China after all. The only thing new this month is that he wants to get a cut of the proceeds. That, of course, is an important new element, not least because it seems bad that the president is asserting the power to unilaterally impose new taxes without Congress. (At least with tariffs, Trump has some laws Congress passed he can cite theoretically granting the authority.) But the big question about H20s remains the same: Does this help Chinese companies like DeepSeek catch up with US companies like OpenAI? And how bad is that, if it happens? The concerns here are such that maybe the best way to understand them is to imagine a debate between a pro-export and anti-export advocate. I'm taking some poetic license here, in part because people in the sector are often averse to plainly saying what they mean on the record. But I think it's a fair reflection of the debate as I've heard it. Anti-Export Guy: Trump says he wants the US to have "global dominance" in AI, and here he is, just letting China have very powerful chips. This obviously hurts the US's edge. Pro-Export Guy: Does it? Again, the H20 is powerful, but it's no H100. In any case, Chinese firms are totally allowed to rent out advanced AI chips in US-based cloud servers. DeepSeek could even rent time on an H100 that way. So, why are we freaking out about exporting a weaker chip? Anti-Export: You act like the cloud option is a loophole -- it's a feature! That way, they're dependent on US servers and companies. If Chinese AI firms ever start making dangerous systems, the US can shut off their access, and they'll be out of luck. Pro-Export: Again, will they be out of luck? There's a third option after Nvidia exports and US servers. Huawei is making its own AI-optimized chips. Chinese firms don't want to depend on foreign servers forever, and if we deny them Nvidia chips, they'll run right over to Huawei chips. Anti-Export: Saying you don't need Nvidia chips when you have Huawei chips is like if you told someone 20 years ago that they don't need an iPod because they have a Zune. Yes, Huawei chips exist, but they're so much worse. They're lower bandwidth than H20s, Huawei's software libraries are full of bugs, and the chips sometimes dangerously overheat. Pro-Export: You're exaggerating. By some metrics, Huawei's latest systems (not just the chips, but the surrounding servers) outperform Nvidia's top-end model -- even though that model uses B200s that are faster than H100s and lightyears faster than you'd ever be allowed to export to China. Yes, programmers will have to learn Huawei's libraries, and transitioning from Nvidia's will take time, but it's doable. Google, Anthropic, and OpenAI have all recently moved away from Nvidia chips toward things like Google's own TPUs or Amazon's Trainiums. That took effort, but they did it. Anti-Export: Sure, but those companies still use Nvidia's too. OpenAI wants 100,000 chips in one Norwegian facility alone. And while US companies may be trying out the competition, Chinese companies still vastly prefer Nvidia to Huawei. DeepSeek reportedly had to delay its latest model because it tried to train it on Huawei chips but couldn't. Even if Huawei chips were popular, Huawei lacks the production capacity to meet demand. It relies on smuggled components to make its top-end chips and can make at most 200,000 this year, compared to the roughly 10 million Nvidia chips shipped annually. There's no substitute for Nvidias. I suppose we'll see, in the next few months and in the rollout of new chips from competitors like Huawei, who got the better of that argument. China is reportedly discouraging firms from using Nvidia chips in the wake of the export tax deal, largely to encourage them to use domestic chips like Huawei, though they are clearly not banning the firms from using Nvidias if they prove necessary. It's also investigating whether the US is including spyware in them. The bigger question this debate raises for me, and one I certainly can't answer adequately here, is: To what degree is "beating China" on AI important for making the future of AI go well? The answer for most US policymakers, and most people I know in the AI safety world, has been "very." The Financial Times reports that some Trump officials are considering resigning in protest over allowing China to get H20s. As Leopold Aschenbrenner, the AI analyst turned hedge funder, put it bluntly in his influential 2024 essay "Situational Awareness": "Superintelligence will give those who wield it the power to crush opposition, dissent, and lock in their grand plan for humanity." If China "wins," then, the result for humanity is permanent authoritarian repression. No doubt, the Beijing regime is brutal, and I have no faith that they will use AI wisely. I'm very confident they'll wield it to oppress Chinese citizens. But it feels as though "staying ahead of China" has become the sine qua non of US AI policy. I worry less that this focus on China is directionally wrong and more that it is exaggerated. The bigger danger is that no one can control these systems, rather than that China can, and that the focus on staying ahead of China will cause the US to speed deployment of automated weapons systems that could prove deeply destabilizing and dangerous. As with most aspects of AI, I feel like there's a small island of things we're all sure of and a vast ocean of unknowns. I think offering China H20s probably hurts AI safety a bit. I think.