China Will Receive Nvidia H200 Chips, But Only Under These Regulations

The AI industry is scaling at unprecedented speeds throughout the world, with every global superpower investing billions of dollars into ensuring that they come out on top before the AI bubble bursts. As things currently stand, the USA has been at a significant advantage when compared to any other country, primarily due to it having stronger chips than those produced anywhere else in the world. This is an advantage that the country was insistent on holding onto by denying the export of high-functioning AI chips to competitors like China. However, U.S. President Donald Trump recently allowed the export of Nvidia's high-end H200 chips to China under specific conditions, one of them being a 25% "fee" paid to the U.S. government for every sale.

The U.S. had never allowed companies like Nvidia to sell their flagship chips in foreign markets, but Trump recently banned the exports of even cheaper, less powerful chips (including the H20) just last year, citing security concerns. This ban was reversed last July, and now, the Trump administration has detailed conditions on what it'll take to send stronger chips to China, the most unusual of which is the fee paid to the U.S. government.

Apart from the fee, in order to be allowed shipment, the chips first have to be checked by a third-party lab for their capabilities in AI development. Nvidia (and potentially AMD) also have to first produce enough chips for the U.S. market before selling overseas. These exports can't be more than 50% of the chips sold inside the USA either, a rule imposed to continue the U.S.'s dominance in the AI industry and to preserve national security. Lastly, these chips cannot be weaponized or used in any way to help develop China's military, which is the main concern in letting China access advanced chips.

While the Commerce Department has approved of H200 sales to China, it doesn't mean that Nvidia is sure to dominate the Chinese market. China previously stopped its industries from buying H20 chips — which were watered-down versions of the H200 made specifically for the Chinese market — due to a mixture of security concerns, not wanting to rely on the U.S., and instead focusing on developing its own artificial intelligence chips, and simply not believing the 2023 chips to be worth much. Just because the U.S. approved exports doesn't mean that Beijing can't block them, especially with Chinese tech manufacturers like Huawei already producing chips that come close to the H200's performance.

Chinese tech companies may also be hesitant to invest in Nvidia chips because of how unreliable the chips' functionality in China has been. With the U.S government repeatedly flip-flopping between banning and allowing exports of these chips, Nvidia suddenly stopping support is a big concern.

The views on this deal are conflicting, with convincing statements on both sides. There are those who believe that China is already on the verge of becoming self-sustained in regards to its reliance on artificial intelligence chips, so having it depend on the U.S. until it does is in America's best interest both economically and in terms of foreign relations. On the other hand, plenty of people are calling the deal "unusual," worrying about the legality of such an agreement and the risks to national security. Whether this gives China the push it needs to come out on top in the AI war or if it lets the U.S. have a more favorable position trading rare earths with China isn't clear yet, but any sales in China are a huge win for Nvidia, which is potentially why it's now competing with Tesla.