Late on Monday evening, July 14, 2025, the ninth richest man on this planet broke some momentous information: The US authorities would enable him, Nvidia CEO Jensen Huang, to promote H20 processors to Chinese language clients once more.
To individuals following the Trump administration and its seemingly never-ending bulletins and reversals of commerce restrictions, this won’t sound like a lot of a blockbuster. So President Donald Trump wished to ban some commerce and a CEO bought him to alter his thoughts (maybe with some assist from Chinese language authorities guarantees on uncommon earth metals). What may very well be extra classically Trump?
However there’s extra happening right here than simply that. Huang was successfully asserting {that a} large American effort, happening for almost three years, to deprive China of the chips wanted to construct superior AI methods, is over, or at greatest on pause. The high-tech chip export management regime constructed up and expanded by the Biden administration, and enforced largely intact by Trump’s crew, now has a loophole in it giant sufficient to drive a self-driving truck by way of.
The H20 chip solely exists in any respect as a part of Nvidia’s efforts to get round these export controls by designing one thing weaker than its flagship H100 chip, which has turn out to be an indispensable software for coaching cutting-edge AI fashions and which the US nonetheless positively doesn’t need Chinese language companies like DeepSeek or Tencent to entry.
Which may appear to be an inexpensive compromise — let China have the weaker chip whereas holding again on the highly effective one. The issue is that whereas the H20 is unquestionably worse than the H100 for some essential duties, for others it’s really extra highly effective than its large brother, and comes at half the value. In April, enforcers on the Bureau of Trade and Requirements in Washington, DC, successfully discovered what Nvidia was making an attempt to do with the H20 and knowledgeable the corporate that they couldn’t export the chip with out a license, which means in impact they couldn’t ship the chips to China in any respect.
However Nvidia now says that Trump, having met personally with Huang, is promising to situation these licenses, which might allow Chinese language AI firms to vastly speed up mannequin growth and infrastructure buildout. And regardless that the H100 chips are formally nonetheless alleged to be off-limits, China might be able to get its palms on them as nicely.
A few week earlier than Huang’s large information, reporters at Bloomberg broke the story of a large information heart building undertaking in Yiwu County within the Gobi Desert, encompassing a number of companies requiring over 115,000 high-end chips for coaching AIs from Nvidia. The undertaking paperwork Bloomberg reviewed gave no indication of how the undertaking would get these chips legally, the implication being that they wouldn’t — they’d illegally smuggle them as an alternative. Now, due to Trump, they may seemingly be capable to get the chips they want legally.
The Yiwu undertaking and the H20 flipflop are each graphic illustrations of simply how essential superior chips — typically known as merely “compute” by AI consultants — have turn out to be, not simply to AI growth however to geopolitics writ giant. They’re the type of issues that the president of the USA takes conferences with non-public trade about.
That’s as a result of compute is a really odd commodity. Superior chips are overwhelmingly designed by one firm (Nvidia), and manufactured by one firm (Taiwan’s TSMC), utilizing machines constructed by one firm (the Netherlands’ ASML). The world can solely produce so many, constructing out the fabrication crops (“fabs”) that produce them takes years, and previous efforts to interrupt these three firms’ dominance have virtually at all times resulted in failure.
The result’s a scarce commodity that’s unbelievably worthwhile in coaching the type of superior AI fashions that the US, China, and different main powers view as indispensable for his or her financial and navy futures.
When you’re not an AI nerd or a US-China watcher, this will all appear moderately technical. However, to paraphrase Trotsky, even if you happen to’re not all in favour of compute, compute is all in favour of you.
In lots of historic eras, there’s a commodity collected and traded in huge portions that current technological progress has made invaluable, which involves dominate financial life. Within the twentieth century, that commodity was oil, enabled by the rise of vehicles and planes. Within the nineteenth century, it was arguably cotton, enabled by the event of the cotton gin.
You may make a robust argument that the defining commodity of the twenty first century can be compute.
“Compute,” as a noun moderately than verb, is how AI companies are inclined to check with AI-optimized processors like Nvidia H100s or H20s. It’s the magic ingredient of AI. You’ll be able to, for any given information and any given crew of researchers, make a way more helpful and efficient mannequin if you happen to merely throw extra processing energy at it.
One motive why so many observers consider progress on AI will proceed to be speedy is that the sum of money being spent on compute continues to rise exponentially quick: Per the analysis group EpochAI, spending on coaching fashions grows by four- to fivefold each single 12 months. For all of the headlines concerning the nine-figure salaries commanded by high AI expertise, most of that spending goes into buying and powering compute.
There are thousands and thousands of high-end processors around the globe, however the provide is meaningfully constrained. It’s not limitless. “Some individuals see compute as an ample international commodity that’s inconceivable to manage,” Erich Grunewald, a researcher on the Institute for AI Coverage and Technique specializing in chips and chip coverage, advised me. “I might view it extra as a strategic useful resource, the way in which oil or metal manufacturing have been up to now. You simply need extra of it. There’s no margin at which you don’t need extra compute, not less than none that’s been found but.”
One signal of compute’s shortage is the value: A single H100 runs about $25,000–$30,000, and the newest mannequin from Meta/Fb was skilled on 32,000 of them. (Mark Zuckerberg bragged in early 2024 that he was going to accumulate 350,000 in complete, which might run over $8 billion.)
Nvidia has a near-monopoly on designing superior AI chips, and primarily makes use of one chip producer (TSMC), which, whereas at all times increasing, can’t produce as many as AI companies need. China has for years been making an attempt to construct out its personal ecosystem of chip design and manufacture, and is nonetheless making an attempt, notably by way of the corporate Huawei, but it surely stays behind; what’s extra, Nvidia has a complete proprietary suite of software program for programming its processors, and 1000’s of programmers skilled to make use of that suite, whereas rivals like Huawei must persuade coders to be taught one thing totally completely different.
The chips’ ongoing shortage and the dominance in chip design and manufacture of US firms like Nvidia and firms positioned in shut US allies, like Taiwan and the Netherlands, put the US in a robust place to manage who will get what chips. And Washington has leveraged that place to attempt to restrict China’s entry to processors just like the Nvidia H100. The Biden administration imposed export controls banning superior chip exports to China in October 2023, and made them stricter in December 2024 and January 2025.
The Trump administration then rescinded the newest tightening, however exporting H100s to China remains to be unlawful. There are some indications the administration is starting to crack down tougher on companies in international locations like Malaysia and Thailand, to which H100 shipments are authorized, however which are typically used as waystations to get H100s to China. After Nvidia introduced that it had designed the H20 chips to get round restrictions on current chips like H100s, the Trump administration initially blocked the transfer, earlier than the mid-July flip-flop.
The export controls have had actual chunk thus far. Simply hearken to the Chinese language AI companies they’re meant to hamper. “Cash has by no means been the issue for us,” Liang Wenfeng, CEO of the Chinese language AI chief DeepSeek, stated in an interview with a tech publication. “Bans on shipments of superior chips are the issue.”
However regardless of the controls, important quantities of smuggling seem like taking place. Final 12 months, New York Instances reporters Ana Swanson and Claire Fu talked to a lot of distributors in China hawking H100s and different superior chips, with one offering proof of an unlawful supply price $103 million to a Chinese language buyer. Grunewald and fellow researcher Tim Fist tried to estimate the extent of smuggling for the assume tank Middle for a New American Safety, and whereas there’s large uncertainty of their figures, they estimate that not less than 10,000 and probably a whole lot of 1000’s of chips have been smuggled to China.
For its half, Nvidia has argued there isn’t any smuggling; CEO Jensen Huang advised reporters earlier this 12 months, “There’s no proof of any AI chip diversion.” Each skilled I’ve spoken with considers this view risible. There’s clearly smuggling, and the query is one in all scale.
What taking compute critically would appear to be
If compute is a strategically important useful resource, then it stands to motive that the US goes to take a position closely in defending its entry and limiting that of adversaries, simply because it has with different strategic sources. Proper now, the US is a part of a multilateral navy effort meant to maintain sea visitors by way of the Suez Canal and Crimson Sea open, partly as a result of large quantities of oil transit by way of there to our allies in Europe; on the identical time the US is so severe about denying entry to grease to international locations like Russia, Iran, and Venezuela that the administration has threatened “secondary tariffs” towards different international locations that a lot as purchase oil from US adversaries.
With compute wanting probably much more strategically essential than oil, equally severe motion to manage who has entry to it might appear to be within the offing. This was the rationale behind the very export controls that Trump is now weakening.
Whereas Trump strikes away from restrictions, many in Congress are moving into the other way. Their proposals might but learn like notes from another universe the place DC determined to take strategic management of compute critically. However Trump has already reversed himself on export controls as soon as, and lots of in his social gathering are dedicated to disrupting Chinese language entry to compute. It’s price, then, serious about what subsequent steps may appear to be in a world the place Trump and his administration determine to take compute critically and play for retains.
How “geofencing” chips would work — and the way it may backfire
When Rep. Invoice Foster (D-IL), a physics PhD who labored on chip design throughout a job at Fermilab in Illinois, first floated the concept of an anti-chip smuggling invoice in Could, the scope was extra formidable than simply monitoring the place chips have been. Foster advised Reuters his plan would contain not solely monitoring location, but additionally “stopping these chips from booting up if they don’t seem to be correctly licensed underneath export controls.” In different phrases, one thing like a distant kill swap for smuggled chips.
That concept, typically known as “geofencing,” has the benefit of being self-enforcing, in contrast to merely verifying location. But it surely didn’t make it into the final word bipartisan invoice, and faces extraordinarily stiff resistance from each trade and lots of consultants. The issue is that it might successfully create a backdoor kill swap in each superior chip that may very well be used to close it off.
In a great world, solely trusted servers run by authorities businesses may ship a sign for the chip to cease working. In the actual world, something may be hacked. It’s one factor for Nvidia to permit the US to trace the place its chips go; it’s fairly one other for it to topic all its clients to shutoffs that in all probability come from the federal government, however may very probably come from a rogue actor.
“With location verification, what if it doesn’t work? We don’t know the place the chip is and we’re again to established order ante,” one skilled, who requested anonymity given the sensitivity of those discussions, advised me. “If geofencing goes improper, you could have a script kiddie turning off a cluster and inflicting a geopolitical disaster.”
Sparked by reviews of smuggling, the method gaining essentially the most steam is a comparatively modest first step referred to as “location verification.” Proposed by an uncommon bipartisan, bicameral group that features Sen. Tom Cotton (R-AR) and Rep. Invoice Foster (D-IL), the Chip Safety Act would require that processors topic to US export controls embody particular firmware to reply to common messages (“pings”) from servers within the US. By timing the delay between when the pings are despatched and when the server receives them, the server may roughly estimate the place on this planet the processor bodily is. In different phrases, if a chip is in China, or seemingly en path to China, the US would find out about it.
Most current processors from firms like Nvidia already embody one thing comparable. “Identification attestation” methods on these chips obtain pings to servers confirming that they’re operational, and what sort of system they’re. That is immensely helpful if you happen to’re an organization working an unlimited array of processors in a knowledge heart or different large facility. Confirming that {hardware} is the place you want it to be by bodily checking may be very pricey; id attestation pings are a lot simpler and less complicated.
However the exact same know-how may very well be used to substantiate the place on this planet processors are. What’s extra, as a result of it’s essentially a bit of imprecise, it may be carried out with out revealing probably delicate data like exact information heart places that firms wish to hold non-public.
Earlier proposals additionally included “geofencing,” which might act as a type of distant kill swap for smuggled chips. However considerations that such a capability may very well be hacked by rogue actors have satisfied many consultants that geofencing can be unworkable. With out this fencing element, if a chip is smuggled to China and run there, the best-case result’s that the US regulators know the place it’s, however they will’t shut it down.
What that might allow, although, is enforcement prioritization. “If in case you have, say, an entity in Singapore that you just ship half a knowledge heart’s price of chips to, and so they boot up, and abruptly they’re now not pinging from Singapore — you realize to not ship the second half,” one supply in Congress engaged on the invoice defined. “It helps in creating an inventory of unhealthy actors.”
That is particularly essential on condition that the Bureau of Trade and Safety, the division on the Commerce Division answerable for stopping smuggling, is so poorly resourced. As of 2023, it solely had about 350 brokers tasked with analyzing trillions in transactions, and its time on AI needed to compete with work imposing main sanctions towards Russia, Iran, and others. “We spend 100% of our time on Russia sanctions, one other 100% on China, and the opposite 100% on every thing else,” Matt Borman, the then-deputy assistant secretary of commerce for export administration, advised the New York Instances that 12 months. The company would clearly profit from a software that might inform it the place to prioritize enforcement towards smuggling.
To be clear, location verification is one in all a number of methods to combat smuggling, and smuggling is just one of a number of methods to restrict China’s entry to compute. Chinese language companies may also entry processors at abroad information facilities run by the likes of Amazon or Microsoft; US regulators are inclined to choose this to direct gross sales of chips to China, as a result of it signifies that the US can monitor precisely how the chips are getting used by way of these US firms, but it surely’s nonetheless a serious useful resource. The agency Huawei can also be actively making an attempt to construct up a line of chips to rival Nvidia’s and ultimately give the nation a supply of compute not topic to US interference. It stays fairly behind, however the extra strain the US places on different sources of compute, the extra motive there’s for China to subsidize Huawei and push companies to make use of Huawei chips and software program.
Information reviews that Trump gave floor on H20s in alternate for Chinese language exports of uncommon earth minerals additional complicates the image. The minerals in query, like gallium and germanium, are essential in making semiconductors of every kind, together with AI chips. Whereas China’s previous restrictions largely bypassed TSMC’s essential factories in Taiwan, they drove up the minerals’ costs and represented an oblique method China may squeeze the US on AI.
All of which is to say: the battle for compute stays extremely high-stakes and each side have highly effective levers they will pull to affect the worldwide provide of compute. Trump’s H20 transfer seemingly elevated China’s and cut back the US’s share of that offer, even with the uncommon earth concessions. However there’s nonetheless time for him to reverse course, and future offers and export controls may alter the stability dramatically.
It might be a mistake to view this as only one extra Trump commerce battle. Whereas Trump’s normal protectionism is predicated on pretty crankish financial views and misplaced nostalgia for Nineteen Seventies America, the export controls have been based mostly on a strategic calculation, by diplomats in each events, about one of the best ways to make sure US management of a scarce international commodity. When Trump chickened out on excessive tariffs on Britain, that was excellent news for British customers however largely a regional story. When Trump chickens out on export controls on Nvidia chips, he decided with large international ramifications, altering the seemingly future stability of US and Chinese language energy.
Compute is completely different, whether or not Trump treats it that method or not, and if Chinese language companies begin to catch as much as US AI labs within the coming months, we’ll seemingly look again on the H20 determination as the beginning of the shift.
