To hedge against the uncertainty of Beijing's approval for its AI chip sales, NVIDIA is imposing unusually strict terms on Chinese firms. These include full payment in advance with no refunds, cancellations, or configuration changes. This tactic effectively shifts the significant financial and regulatory risk from NVIDIA to its customers in a high-stakes market.
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China's pause on Nvidia H200 chip orders is not a permanent ban but a strategic move. The government aims to balance its immediate need for advanced AI chips with its long-term goal of fostering a competitive homegrown chip industry, preventing over-reliance on Western technology.
The decision to allow NVIDIA to sell powerful AI chips to China has a counterintuitive goal. The administration believes that by supplying China, it can "take the air out" of the country's own efforts to build a self-sufficient AI chip ecosystem, thereby hindering domestic firms like Huawei.
In a novel deal, the U.S. government granted NVIDIA export licenses for its H200 chips—advanced, but not cutting-edge—to markets like China. In return, NVIDIA pays a 25% fee on those sales. This establishes a new model where the government takes a direct revenue share from strategic tech companies in exchange for controlled market access.
The US has reversed its strict chip controls on China. Instead of a complete ban, it now allows NVIDIA to sell advanced H200 chips but with a 25% tax, effectively turning a geopolitical restriction into a significant revenue stream for the US Treasury, estimated at $5 billion annually.
With its new Blackwell chips available globally, NVIDIA's older H200s have only one major buyer: China. This creates a precarious situation where a potential $50 billion in revenue hinges entirely on Beijing's unpredictable approval, forcing NVIDIA to demand unusually strict, non-refundable upfront payments to mitigate risk.
Despite the U.S. easing export controls, China's government may restrict imports of NVIDIA's advanced chips. Beijing is prioritizing its long-term goal of semiconductor self-sufficiency, which requires creating a protected market for domestic firms like Huawei, even if Chinese tech companies prefer superior foreign hardware.
When NVIDIA CEO Jensen Huang praises Donald Trump's 'pro-energy' stance, the subtext is a strategic appeal. He is lobbying for the freedom to sell high-performance GPUs to China, despite significant national security implications recognized by the Defense Department.
Restricting sales to China is a catastrophic mistake that creates a protected, trillion-dollar market for domestic rivals like Huawei. This funds their R&D and global expansion with monopoly profits. To win the long-term AI race, American tech must be allowed to compete everywhere.
China's refusal to buy NVIDIA's export-compliant H20 chips is a strategic decision, not just a reaction to lower quality. It stems from concerns about embedded backdoors (like remote shutdown) and growing confidence in domestic options like Huawei's Ascend chips, signaling a decisive push for a self-reliant tech stack.
The US government's reversal on Nvidia H200 chip sales to China, now with a 25% tax, indicates a strategic shift. The policy is no longer a complete blockade but aims to keep China one generation of chips behind while generating significant tax revenue for the US.
