Nvidia Corp.’s (NASDAQ: NVDA) recent journey in China began when the U.S. government blocked exports of its chips to China in April. This included a chip known as H20, which was less powerful than Nvidia’s flagship products. The intention was that these stripped-down chips would keep China from getting an artificial intelligence (AI) edge on the United States.
The U.S. government changed its Nvidia plans in August and let it export its chips to China, after heavy lobbying by CEO Jensen Huang. Huang also went to China in what might be called shuttle diplomacy. President Trump said he wanted a 15% export license for Nvidia’s products. Although expensive, it gave Nvidia access to the world’s second-largest consumer of AI chips. It also meant that China would be able to improve products like DeepSeek, its leading AI product.
Along the way, several AI industry leaders said that China’s improving products threatened the U.S. dominance of AI. The two companies were in a race for which would have the upper hand in the most important tech advance since the creation of the personal computer and the internet.
One of Donald Trump’s most senior cabinet officers made a significant strategic error. On July 15, Howard Lutnick, the U.S. Secretary of Commerce, told CNBC that the H20 did not threaten U.S. AI success because it was far from Nvidia’s best products: “We don’t sell them our best stuff, not our second-best stuff, not even our third-best.” Chinese officials described the comments as an insult.
Lutnick’s comments also allowed Chinese officials to push for the use of the nation’s homegrown AI chips. Among the reasons given were that the H20 was a “security risk.” Nvidia reacted to the Chinese decision by stopping production, and it told suppliers to stop making components for H20 virtually.
To make matters more complex, Nvidia is preparing another chip for the Chinese market. Huang said it was up to the U.S. government whether China could import these.
The most important part of this back-and-forth is a Chinese desire to use chips made by local manufacturers. The leading company in this push is Huawei, which some describe as China’s answer to Nvidia products. RAND’s Jimmy Goodrich told The Wall Street Journal that “China wants to have the best chips but also wants to have domestic chips at the same time. Those two goals are in conflict with one another.”
Can Huang broker peace between the U.S. and Chinese authorities? If not, homegrown products will be favored heavily over Nvidia’s.
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