The tech world witnessed an unprecedented development this week. Two semiconductor giants, Nvidia and AMD, agreed to pay the U.S. government 15% of their revenues from AI chip sales to China. This arrangement marks a dramatic shift in how America approaches technology exports and trade negotiations.
The deal emerged after intense lobbying and high-stakes negotiations. It represents the Trump administration’s novel approach to maintaining technological dominance while extracting financial benefits from international trade.
The Genesis of an Unusual Agreement
The story begins with a crucial meeting at the White House. Nvidia CEO Jensen Huang sat down with President Donald Trump on Wednesday, seeking a path forward for his company’s China business. The stakes couldn’t have been higher. Trump initially demanded 20% of chip sale revenues. But after negotiations, both parties settled on 15%. This percentage applies to Nvidia’s H20 chips and AMD’s MI308 chips – specialized processors designed specifically for the Chinese market.
“I said, if I’m going to do that, I want you to pay us, as a country, something, because I’m giving you a release,” Trump explained during a Monday press conference. The president’s direct involvement underscores the deal’s significance.
The arrangement allows both companies to obtain export licenses. These permits were granted Friday, just two days after Huang’s White House visit. However, no shipments have commenced yet.
Understanding the Technology at Stake
These aren’t just any computer chips. The H20 and MI308 processors represent sophisticated artificial intelligence technology. They power machine learning applications, data analysis, and AI development across industries. Nvidia developed the H20 specifically for China after previous export restrictions. It’s less powerful than the company’s flagship Blackwell chips but still represents advanced technology. AMD’s MI308 serves a similar purpose in the competitive AI chip market.
The Chinese market’s appetite for these chips is enormous. Analysts expect China’s AI investment to reach approximately $100 billion this year. That represents a nearly 50% increase from the previous year.
Leading Chinese tech companies have already shown strong interest. ByteDance, Tencent, and DeepSeek purchased H20 chips before the April export ban. Their continued demand makes this market crucial for American chipmakers.
Trump’s Strategic Calculations
President Trump views these chips through a strategic lens. He calls the H20 “obsolete” compared to newer technology. This assessment influences his willingness to allow their export. “The chip that we’re talking about, the H20, it’s an old chip,” Trump stated. “China already has it in a different form, different name, but they have it.”
However, Trump maintains strict controls on more advanced technology. The Blackwell chip remains off-limits to Chinese buyers. Trump suggested he might consider Blackwell exports for an even higher percentage – potentially 30% to 50%.
This tiered approach reflects careful calculation. The administration wants to maintain America’s technological edge while capturing economic benefits from less sensitive exports.
Industry Reactions and Market Implications
The semiconductor industry has never seen anything like this arrangement. Export control experts confirm no U.S. company has previously agreed to pay revenue percentages for export licenses.
“Unprecedented… I don’t know what the word is, but it’s bad,” says trade expert Deborah Elms. Her reaction reflects widespread industry concern about the precedent this sets.
Bernstein Research analysts estimate significant financial implications. Based on pre-control guidance, Nvidia might have sold 1.5 million H20 chips to China in 2025. This could generate approximately $23 billion in revenue, meaning $3.45 billion would flow to the U.S. government.
The arrangement could yield up to $2 billion annually for Washington, according to BBC analysis. This represents substantial revenue for the federal government from private sector activities.
China’s Security Concerns Mount
Beijing hasn’t remained silent about these developments. Chinese state media has raised serious security concerns about American chips. A social media account linked to state broadcaster CCTV warned about potential “backdoors” in H20 processors.
“When a type of chip is neither environmentally friendly, nor advanced, nor safe, as consumers, we certainly have the option not to buy it,” the commentary stated. This represents a significant shift in China’s public stance.
China’s cybersecurity administration has also expressed concerns. They worry about “tracking and positioning” capabilities and “remote shutdown” functions in American chips. These fears mirror longstanding U.S. concerns about Chinese technology.
Nvidia has repeatedly denied embedding backdoors in its products. The company published a blog post reiterating that its chips lack “back doors, spyware or kill switches.” They argue such features would benefit hackers and hostile actors.
National Security Debates Continue
The deal has sparked intense debate among security experts. Critics argue it undermines America’s strategic position by helping China’s AI development. They worry about military applications of these technologies.
“Beijing must be gloating to see Washington turn export licences into revenue streams,” said Liza Tobin, a China expert who served on the National Security Council. “What’s next letting Lockheed Martin sell F-35s to China for a 15 per cent commission?”
Twenty security experts, including former deputy national security adviser Matt Pottinger, wrote to Commerce Secretary Howard Lutnick. They urged against granting H20 licenses, calling the chip a “potent accelerator of China’s frontier AI capabilities.”
However, other experts support the approach. They argue that restricting chip sales pushes China toward developing domestic alternatives. Maintaining Chinese dependence on American technology might serve long-term strategic interests.
The Broader Trade Context
This chip deal doesn’t exist in isolation. It’s part of broader U.S.-China trade negotiations that could reshape bilateral relations. Both countries are working toward a potential summit between Trump and Chinese President Xi Jinping.
The timing is crucial. A trade truce between the nations was set to expire on August 12. Officials have signaled possible extensions following talks in Sweden last month. The chip arrangement could influence these broader negotiations.
China is reportedly seeking relaxation of export controls on high-bandwidth memory (HBM) chips. These components are critical for manufacturing advanced AI processors. Chinese officials have communicated this priority to Washington experts.
U.S. Treasury Secretary Scott Bessent previously described Nvidia export controls as a “negotiating chip” in larger trade discussions. This characterization proves prescient given recent developments.
Setting Dangerous Precedents?
Critics worry about the precedent this arrangement establishes. If the U.S. government can demand revenue shares from chip sales, what prevents similar demands for other industries?
Companies across sectors maintain significant business relationships with China. Apple, Tesla, and countless smaller manufacturers could face similar demands. This uncertainty creates planning challenges for American businesses.
The arrangement also raises questions about government involvement in private commerce. Traditional export controls focus on national security rather than revenue generation. This shift toward profit-sharing represents a fundamental change in approach.
Trade expert Deborah Elms warns about the implications. “This is a very different US environment from the one that we’ve had in the past,” she observes. The flexibility might seem positive, but it creates uncertainty for businesses.
Looking Ahead: Implications and Uncertainties
Several key questions remain unanswered. The White House hasn’t explained how it will use the revenue from chip sales. Will the money fund specific programs or enter general government coffers?The implementation details also remain unclear. How will the government monitor sales and collect payments? What happens if companies fail to meet their obligations? These operational questions need resolution.
China’s response will significantly influence the arrangement’s success. If Chinese companies refuse to purchase American chips due to security concerns, the revenue projections become meaningless. Beijing’s public warnings suggest this possibility.The deal’s impact on innovation also deserves consideration. Will revenue-sharing requirements discourage American companies from developing China-specific products? This could affect long-term competitiveness in global markets.
Conclusion: A New Era in Tech Trade
The Nvidia and AMD revenue-sharing arrangement represents more than a business deal. It signals a fundamental shift in how America approaches technology exports and international trade relations.
This precedent could reshape relationships between government and industry. Companies may face new expectations about sharing profits from international business. The implications extend far beyond the semiconductor sector.
The arrangement reflects Trump’s transactional approach to international relations. Rather than simply restricting trade, his administration seeks to extract value from it. This strategy prioritizes immediate financial benefits alongside strategic considerations.
Whether this approach succeeds depends on multiple factors. China’s willingness to purchase American chips, industry acceptance of new requirements, and the broader trajectory of U.S.-China relations will all play crucial roles.
One thing is certain: the technology trade landscape has changed permanently. Companies, governments, and analysts must adapt to this new reality where export licenses come with price tags attached.
The semiconductor industry, long accustomed to navigating complex regulations, now faces an additional layer of complexity. Revenue-sharing requirements add financial considerations to traditional security and compliance concerns.
As this story continues to unfold, its implications will reverberate throughout the global technology ecosystem. The precedent set today may define trade relationships for years to come.
Sources
- CNN: Nvidia and AMD will give US 15% of China sales
- BBC: The US is taking a cut from chip sales to China – what does it mean?
- Financial Times: Nvidia and AMD to pay 15% of China chip sale revenues to US government
- The Decoder: Nvidia and AMD must pay the U.S. a portion of revenue for selling AI chips in China
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