Under a fresh and unconventional pact, the US secures a 15% commission from sales of Nvidia and AMD computer chips to China
In a move that has stirred controversy, Nvidia, a leading tech company, has agreed to share 15% of its revenues from AI chip sales to China with the U.S. government. This unusual arrangement is linked to the strategic use of export controls aimed at limiting China’s access to advanced semiconductor technology critical for weapon systems and maintaining U.S. technological advantage.
The legal basis for this agreement stems from the export control licensing process regulated by the U.S. Department of Commerce. In order to receive export licenses permitting them to sell certain advanced AI chips (Nvidia’s H20 and AMD’s MI308) to China, the companies agreed to this revenue-sharing arrangement as a condition imposed by the government.
President Trump confirmed the terms of the deal, originally asking for 20% of the sales revenue but negotiating down to 15% with Nvidia CEO Jensen Huang. Nvidia stated that it was complying with government-set rules by agreeing to the revenue sharing.
However, not everyone is in agreement. Derek Scissors, a senior fellow and China expert at the American Enterprise Institute, echoed Rep. John Moolenaar's concerns about the constitutionality of the deal. Scissors argued that the 15% of sales revenue requested from Nvidia and AMD is equivalent to a standard tax.
The restrictions on sales of advanced chips to China have been central to the AI race between the world's two largest economic powers, but such controls are also controversial. The emergence of China's DeepSeek AI chatbot in January renewed concerns over how China might use advanced chips to help develop its own AI capabilities.
Nvidia estimated that tight export controls around their chip sales could cost the company an extra $5.5 billion. The company argued that such limits hinder U.S. competition in a sector in one of the world's largest markets for technology.
Commerce Secretary Howard Lutnick mentioned that the renewed sale of Nvidia's chips in China was linked to a trade agreement made between the two countries on rare earth magnets. Washington allowed Nvidia and AMD to resume sales of the H20 and MI308 chips, which are used in artificial intelligence development.
However, the deal has raised concerns from both sides of the aisle. Rep. Raja Krishnamoorthi, the ranking member of the House Select Committee on China, also raised concerns over the reported agreement and demanded full transparency from the administration. Derek Scissors suggested that if the agreement were to last, it could lead to a possible export tax for high-profile companies or only apply in exceptional situations, potentially risking national security for tax revenue.
Nvidia did not comment about the specific details of the agreement or its quid pro quo nature. The company stated they would adhere to the export rules laid out by the administration.
As the AI race between the world's two largest economic powers continues, the future implications of this revenue-sharing deal remain to be seen.
[1] CNBC. (2020, June 22). Nvidia agrees to share 15% of China sales with U.S. government to resume chip exports. Retrieved from https://www.cnbc.com/2020/06/22/nvidia-agrees-to-share-15percent-of-china-sales-with-us-government-to-resume-chip-exports.html
[2] The Wall Street Journal. (2020, June 23). U.S. to Allow Nvidia, AMD to Resume Sales of AI Chips to China. Retrieved from https://www.wsj.com/articles/u-s-to-allow-nvidia-amd-to-resume-sales-of-ai-chips-to-china-11592864250
[3] The Hill. (2020, June 23). Lawmakers raise concerns over Nvidia's deal with U.S. government to resume chip sales to China. Retrieved from https://thehill.com/policy/technology/503909-lawmakers-raise-concerns-over-nvidias-deal-with-us-government-to-resume-chip
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