Nvidia and AMD have reached an agreement with the U.S. government to remove restrictions on selling their lower-tier artificial intelligence chips to China. In exchange, both companies will pay Washington 15% of their revenues from these sales.
The arrangement sidesteps a possible constitutional issue. The U.S. Constitution forbids export taxes under Article I, Section 9, Clause 5, but because the chips are manufactured in Taiwan, they are not technically exported from the United States.
This marks a dramatic policy shift. Initially, the U.S. banned the export of these chips to China over national security concerns. Now, those same chips are permitted for sale—as long as the government gets a cut. Critics argue this raises questions about whether national security decisions are being influenced by potential revenue streams.
China Pushes Back Against Nvidia’s Market
Chinese authorities have advised local companies to avoid foreign AI chips, especially Nvidia’s H20 model, in sensitive national security-related projects. Bloomberg reported that this guidance applies to both state-owned enterprises and certain private firms.
China’s reasoning appears twofold:
- Concern over possible backdoors or spyware embedded in foreign chips—a claim Nvidia has denied.
- Support for domestic chipmakers, notably Huawei, in a tit-for-tat response to U.S. restrictions.
The U.S. has banned Huawei since 2019, most recently blocking the company’s Ascend 910C chip, a direct competitor to Nvidia’s H20. China’s warning stops short of a full ban, largely because Huawei cannot meet full market demand, so the approach is targeted rather than blanket.
The Black Market Problem
Even with official restrictions in place, high-end AI chips continue to flow into China through illicit channels. On August 5, the U.S. Justice Department announced the arrest of two Chinese nationals accused of smuggling advanced Nvidia H100 chips and other technology from October 2022 to July 2025. The alleged scheme was worth tens of millions of dollars.
A Financial Times report estimated that roughly $1 billion worth of high-end Nvidia processors have reached the Chinese black market. Nvidia has warned that building data centers using smuggled chips is both technically and economically risky since only authorized products receive company support.
However, some investigative reporting paints a different picture. Smugglers claim Nvidia unofficially turns a blind eye, adopting an “open one eye, close one eye” approach. YouTube channel Gamers Nexus has been investigating the GPU black market in China for months, with a documentary release scheduled for August 15.
Author’s Opinion
The U.S. deal with Nvidia and AMD blurs the line between national security and profit-making. If these chips truly pose no risk, they should be freely traded without a revenue cut. If they do pose a risk, they shouldn’t be sold at all. The current arrangement sends a murky message to both allies and rivals: security concerns can be negotiated—for the right price. That’s a dangerous precedent in an industry shaping the global balance of power.
Featured image credit: Wikimedia Commons
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