Nvidia, AMD Will Give Cut of China Chip Sales to US

Key Concepts

• Export Tax/Duty: A charge levied on goods exported from a country.
• Article One, Section Nine of the Constitution: Prohibits taxes or duties on articles exported from any U.S. state.
• Transactional Administration: A governing style focused on deal-making and revenue generation.
• High-End Semiconductors: Advanced computer chips with significant technological capabilities.
• China Chip Export Licenses: Government permissions required for companies to sell chips to China.
• US-China Chip Wars: The ongoing competition and conflict between the U.S. and China in the semiconductor industry.
• Inference Compute: Processing data to make predictions or decisions.
• Training (AI): The process of teaching an AI model to perform a task.
• Domestic Champions: Local companies that are supported and promoted by their government.
• 20% Fentanyl Tariffs: A proposed tariff on fentanyl imports from China.
• High Bandwidth Memory (HBM) Chips: High-performance memory chips used in advanced computing applications.
• Semiconductor Manufacturing Equipment: The tools and machinery used to produce semiconductors.
• Rare Earths: A group of 17 chemical elements essential for many high-tech products.
• USTR (United States Trade Representative): The U.S. government agency responsible for developing and coordinating U.S. international trade policy.
• Stockholm (or European Capital) Terms: Refers to agreements or understandings reached during negotiations in a European capital, likely concerning trade or technology.

Unorthodox Export Controls and Constitutional Concerns

The discussion begins by highlighting the unusual nature of the U.S. imposing what is essentially an export tax in exchange for companies being allowed to export technology to China. This is described as "unorthodox" and raises concerns about its legality under Article One, Section Nine of the U.S. Constitution, which prohibits taxes on exports.

Transactionalism and Revenue Generation

The administration's approach is characterized as "highly transactional," raising questions about whether revenue generation is becoming a primary driver of trade policy and export controls, even in areas like high-end semiconductors. The key question is where the line is drawn between revenue generation and national security concerns.

NVIDIA, AMD, and China Chip Export Licenses

NVIDIA and AMD have received initial China chip export licenses. This was a key point for investors, as confirmed by Lisa Su of AMD. The long-term access of companies to the Chinese market remains a concern.

China's Response and Concerns

China has expressed concerns about the amount of information and potential "backdoors" in U.S. technology, particularly in drones.

The "Jensen" Strategy and Intel's Challenges

The discussion references the idea of "pulling a Jensen," alluding to NVIDIA CEO Jensen Huang's strategy. The idea is that if the U.S. doesn't export technology, China will develop its own domestic champions and export that technology instead. Intel's struggles are mentioned, along with the potential for the U.S. to create an American chip champion.

Uncertainty and the Intensifying US-China AI Competition

The level of "transactionalism" introduces uncertainty about the long-term sustainability of the current approach. As the U.S.-China AI competition intensifies, there's a possibility of a "freak out moment" where controls become more restrictive.

National Security vs. Revenue: The $1 Billion Question

The discussion questions whether the American president is forgoing national security concerns for at least $1 billion per quarter in revenue. The ability to track and understand how U.S. technology is ultimately used in China is also questioned.

Inference Compute and Huawei

The administration's assumption is that inference compute is not the chief national security concern. However, if Huawei can produce comparable chips, the U.S. may ease chip controls to allow U.S. companies to compete.

The Slippery Slope and US-China Summit

Allowing exports to an economic adversary for a deal is described as a "slippery slope." As preparations for a US-China summit proceed, Beijing will likely push for an easing of the 20% fentanyl tariffs and restrictions on high bandwidth memory (HBM) chips.

HBM Chips and Huawei's Production

Easing HBM chip restrictions could benefit Huawei by improving its production capabilities, even if it helps U.S. memory chip makers like Micron and Samsung.

Semiconductor Manufacturing Equipment Controls

The U.S. is not currently using semiconductor manufacturing equipment controls. If the goal is to throttle Chinese chip production and allow U.S. companies to "flood the zone" with their technology, then helping Huawei with production is counterproductive.

China's Leverage: Rare Earths

China has significant leverage due to its control over critical raw materials like rare earths. If the U.S. raises tariffs or technology controls, China could restrict licenses for these materials, paralyzing U.S. production lines.

Conclusion

The U.S. is in a highly transactional phase with its export controls on semiconductors to China, balancing revenue generation with national security concerns. This approach is unorthodox and potentially unconstitutional. China has leverage through its control of rare earths, and the long-term implications of this strategy are uncertain, especially as the US-China AI competition intensifies. The upcoming US-China summit will be crucial in determining the future of these controls.