US President Donald Trump has decided to sell advanced AI chips, including Nvidia's H200, to China. This decision is an abrupt change in US strategy. The most significant implications will depend on how many of these chips are sold. Selling millions of chips risks turning the AI race on its head, while selling a limited number will have less dramatic consequences.
The H200, launched in March 2024, is still the most powerful chip for AI training and development. Even though China has potential in engineering, the best Chinese chip, Huawei's Ascend 910C, is still about 30% less powerful. Chinese companies will need until the end of 2027 to compensate for this gap. The sale of the H200 will certainly give a boost to China's AI ambitions. Big tech companies, such as Alibaba and Tencent, are already pushing the government for access to these imports.
Trump's team hopes this will take demand away from Chinese chipmakers. However, many see a risk to the US AI industry. "This decision is crazy. We are literally surrendering our advantage," said First National Security Adviser Jake Sullivan.
The crucial issue is quantity. Modern AI requires enormous computing power. A national advantage in computing power has compound benefits: More chips mean better AI products, more revenue, and more capital to reinvest in research and development. The Institute for Progress estimates that without restrictions, China would buy over 2 million chips next year, drastically reducing the American advantage. If only a few hundred thousand chips are approved, the US will retain a significant advantage.
There are indications that the government may not be planning a full liberalization. Trump's announcement said the chips would only be sold to "approved" customers under "conditions" that would protect national security. Maintaining the license requirement means that the government will retain the ability to control sales volumes. The Department of Commerce can determine the number of chips a license covers, and it can revoke it with a wave of the hand.
The Trump administration has already used this tactic of "big announcement, slow tracking" with sales of AI chips in the Middle East. While millions of processors were promised, the first approvals were only for 35,000 chips. Similar delays can occur with H200 shipments to China. Four agencies will have to weigh license approvals, and any new Chinese provocations will provide a reason to pause shipments. Pressure from Congress can also slow things down.
On the Chinese side, there are many potential buyers, but there are already signs of friction. The Department of State Security is considering asking potential buyers to explain why they cannot meet their needs with Huawei products. The Chinese government will want to ensure continued demand for Chinese chips.
In addition, many of the new chips may simply replace China's existing access to Nvidia processors. China already has a large inventory, partly from imports before the restriction of export rules in 2023, and many other chips smuggle across the border every year.
Trump's decision is of enormous strategic importance, as it will make it very difficult for the US to convince other countries to impose their own restrictions on the sale of AI technology to China. The coherent strategy to protect the American advantage in chip production depends on the cooperation of allies.
While there is a possibility that Trump is seeking a broader renewal of relations with China, those who fear the worst or hope for unlimited H200 deliveries should remember one lesson: Just because an announcement holds big promises doesn't mean you'll get what you expected when it comes time to sign.
