The Nvidia license and the US–China AI race

In recent years, the United States and China have entered into a fierce struggle for leadership of the economy of the future. Developments in the field of artificial intelligence, in particular, are advancing at a dizzying pace thanks to the vast resources the world’s major technology companies are pouring into R&D and chip development. It is certainly no coincidence that Nvidia, the producer of the chips that are the most important element for the development of artificial intelligence, has in the last few years become the most valuable company in the world.

Nvidia’s monopoly in the production of AI chips stands out as an advantage that will support America’s dominance in this field, while the ban on chip exports to China carries the dual risk of market loss for the American company and of prompting China to develop its own national capacity. Thanks to the lobbying activities of the company’s CEO, which emphasized these points, the Trump administration’s decision to grant Nvidia and AMD licenses for limited chip exports to China indicates that America has accepted it cannot achieve results against China solely through economic pressure and export controls.

EXPORT LICENSE TO CHINA

Nvidia’s receipt last month of permission from the Trump administration to export AI chips to China represents a significant shift from the policies of both the Trump era, which began the trade wars with China, and the Biden era, which imposed the chip export ban. Both Trump and Biden had sought to block China’s access to American-made advanced technology products. Washington, which has tried to keep Chinese companies such as Huawei and BYD out of European and American markets, does not want to accept American companies like Nvidia losing market share. In addition, the possibility that China, if forced, could produce these chips on its own and free itself from the monopoly of American firms is seen as a significant risk.

The Trump administration’s agreement to allow limited exports of less advanced chips became possible with Nvidia’s promise to invest $500 billion in America and to give 15% of its sales to China to the American federal government. Since Trump came to power, many countries and companies have sought to please him by pledging astronomical investments in America, and Nvidia’s promise can be read in this light, with the question of how this investment will contribute to a transformation in national industry remaining unclear. Even more questionable is the company’s acceptance of giving the federal government a 15% share of its sales to China. Such a method, unusual for American companies, is criticized as an “export tax.”

While America seeks to slow China’s progress in the field of artificial intelligence, it also aims for American companies’ products and standards to become the global norm. Accepting the argument that ensuring the AI chip market is built on American standards requires selling to China, the Trump administration argues that Nvidia’s H20 and AMD’s MI308 chips are not at the highest level and will guarantee that China remains behind. However, there are many areas in which China has in the past been able to make a leap forward by building expertise with older technologies. In other words, without having the most advanced chips, China could make rapid progress by investing in large quantities of chips, memory capacity, and broad network infrastructure. Therefore, the less advanced chips developed by Nvidia to bypass export restrictions could be made less of a limitation through well-designed data centers and software.

NATIONAL SECURITY OR COMMERCIAL INTERESTS?

We see that America, while trying to transform its national industrial policy through protectionism via customs tariffs, is also trying to use export controls as a critical weapon in its geopolitical competition with China. By citing national security concerns, Washington seeks to restrict technological developments and platforms originating from China, but when these policies are seen to negatively affect the commercial interests of American companies, it feels the need to show flexibility. The Trump administration does not hesitate to state openly that this flexibility comes with a price and that it wants a share of exports.

The picture that emerges is a problematic one for national security: Washington wants to slow China’s progress in advanced technology while also avoiding jeopardizing the commercial interests of American companies. While chips are among the most critical elements in the global race for leadership in artificial intelligence between the United States and China, the way in which the high-tech ecosystem is strategically managed will also have an impact. The fact that the world’s best chips are produced by American companies, yet Washington oscillates between a “total ban” and “controlled export,” and at the same time sees chip sales as a source of revenue for the federal government, indicates that the Trump administration is trying to kill several birds with one stone.

If the perception arises that lifting export controls comes with a financial price, it will become even harder for America to keep its allies away from trading with China. It is difficult to say that the export license granted to Nvidia is part of a comprehensive industrial and production strategy. This permission stands out more as an effort to protect the short-term interests of American companies while creating a new source of income for the American state.

How these will contribute to America’s victory over China in the AI race is uncertain. Although America produces the best chips, it is known that China is ahead in many areas, especially in applications. It would be wrong to underestimate China’s potential to overcome the disadvantages of Nvidia chips, given its freedom from privacy restrictions on personal data in AI applications and its enormous advantage in large-scale centralized strategic planning. The issue of the Nvidia license, which shows that America’s strategy on technological competition with China is still unclear, can be read as a sign that it is wavering between a national security perspective and the protection of commercial interests.