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 endless bulletins and reversals of commerce restrictions, this may not sound like a lot of a blockbuster. So President Donald Trump wished to ban some commerce and a CEO bought him to vary his thoughts (maybe with some assist from Chinese language authorities guarantees on uncommon earth metals). What might be extra classically Trump?
However there’s extra happening right here than simply that. Huang was successfully saying {that a} large American effort, happening for practically three years, to deprive China of the chips wanted to construct superior AI programs, is over, or at finest on pause. The high-tech chip export management regime constructed up and expanded by the Biden administration, and enforced largely intact by Trump’s workforce, now has a loophole in it giant sufficient to drive a self-driving truck by means 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 instrument 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 seem 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 certainly worse than the H100 for some essential duties, for others it’s truly 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 no 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 problem these licenses, which might allow Chinese language AI corporations to tremendously speed up mannequin improvement and infrastructure buildout. And though the H100 chips are formally nonetheless purported to be off-limits, China might be able to get its palms on them as properly.
A few week earlier than Huang’s large information, reporters at Bloomberg broke the story of a large information middle 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 a substitute. Now, due to Trump, they are going to doubtless be capable of get the chips they want legally.
The Yiwu undertaking and the H20 flipflop are each graphic illustrations of simply how essential superior chips — typically referred to as merely “compute” by AI consultants — have turn out to be, not simply to AI improvement however to geopolitics writ giant. They’re the sort of issues that the president of america takes conferences with non-public business 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 corporations’ dominance have virtually at all times led to failure.
The result’s a scarce commodity that’s unbelievably helpful in coaching the sort of superior AI fashions that the US, China, and different main powers view as indispensable for his or her financial and army futures.
If you happen to’re not an AI nerd or a US-China watcher, this will likely all appear relatively technical. However, to paraphrase Trotsky, even should you’re not concerned with compute, compute is concerned with 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 cars and planes. Within the nineteenth century, it was arguably cotton, enabled by the event of the cotton gin.
You may make a powerful argument that the defining commodity of the twenty first century can be compute.
“Compute,” as a noun relatively than verb, is how AI companies are likely to seek advice from AI-optimized processors like Nvidia H100s or H20s. It’s the magic ingredient of AI. You possibly can, for any given information and any given workforce of researchers, make a way more helpful and efficient mannequin should you merely throw extra processing energy at it.
One motive why so many observers consider progress on AI will proceed to be fast is that the amount of cash 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 yr. For all of the headlines in regards to the nine-figure salaries commanded by prime AI expertise, most of that spending goes into buying and powering compute.
There are tens of millions of high-end processors all over the world, however the provide is meaningfully constrained. It’s not limitless. “Some individuals see compute as an plentiful international commodity that’s unimaginable to regulate,” Erich Grunewald, a researcher on the Institute for AI Coverage and Technique specializing in chips and chip coverage, informed me. “I’d 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, at the least 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 educated on 32,000 of them. (Mark Zuckerberg bragged in early 2024 that he was going to amass 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 means of the corporate Huawei, however it stays behind; what’s extra, Nvidia has a complete proprietary suite of software program for programming its processors, and hundreds of programmers educated to make use of that suite, whereas rivals like Huawei must persuade coders to study one thing solely totally different.
The chips’ ongoing shortage and the dominance in chip design and manufacture of US corporations like Nvidia and corporations situated in shut US allies, like Taiwan and the Netherlands, put the US in a powerful place to regulate 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 continues to be unlawful. There are some indications the administration is starting to crack down more durable on companies in international locations like Malaysia and Thailand, to which H100 shipments are authorized, however which might be generally 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 chew so 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, mentioned in an interview with a tech publication. “Bans on shipments of superior chips are the issue.”
However regardless of the controls, vital quantities of smuggling seem like taking place. Final yr, New York Occasions reporters Ana Swanson and Claire Fu talked to quite a few distributors in China hawking H100s and different superior chips, with one offering proof of an unlawful supply value $103 million to a Chinese language buyer. Grunewald and fellow researcher Tim Fist tried to estimate the extent of smuggling for the assume tank Heart for a New American Safety, and whereas there’s large uncertainty of their figures, they estimate that at the least 10,000 and probably a whole bunch of hundreds of chips have been smuggled to China.
For its half, Nvidia has argued there isn’t any smuggling; CEO Jensen Huang informed reporters earlier this yr, “There’s no proof of any AI chip diversion.” Each knowledgeable I’ve spoken with considers this view risible. There’s clearly smuggling, and the query is one in every of 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 assets. Proper now, the US is a part of a multilateral army effort meant to maintain sea visitors by means of the Suez Canal and Pink Sea open, partly as a result of large quantities of oil transit by means of there to our allies in Europe; on the similar 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” in opposition to 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 regulate 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 stepping into the wrong way. Their proposals could 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 plenty of in his celebration are dedicated to disrupting Chinese language entry to compute. It’s value, then, excited 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 informed Reuters his plan would contain not solely monitoring location, but in addition “stopping these chips from booting up if they don’t seem to be correctly licensed below export controls.” In different phrases, one thing like a distant kill swap for smuggled chips.
That concept, generally referred to as “geofencing,” has the benefit of being self-enforcing, in contrast to merely verifying location. However it didn’t make it into the final word bipartisan invoice, and faces extraordinarily stiff resistance from each business and plenty of consultants. The issue is that it might successfully create a backdoor kill swap in each superior chip that might be used to close it off.
In an excellent world, solely trusted servers run by authorities businesses might ship a sign for the chip to cease working. In the actual world, something could 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 might very presumably 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 knowledgeable, who requested anonymity given the sensitivity of those discussions, informed me. “If geofencing goes improper, you will have a script kiddie turning off a cluster and inflicting a geopolitical disaster.”
Sparked by experiences of smuggling, the method gaining essentially the most steam is a comparatively modest first step often called “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 answer 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 might roughly estimate the place on this planet the processor bodily is. In different phrases, if a chip is in China, or doubtless en path to China, the US would learn about it.
Most current processors from corporations like Nvidia already embody one thing related. “Id attestation” programs on these chips obtain pings to servers confirming that they’re operational, and what sort of system they’re. That is immensely helpful should you’re an organization working an enormous array of processors in an information middle or different large facility. Confirming that {hardware} is the place you want it to be by bodily checking may be very pricey; identification attestation pings are a lot simpler and less complicated.
However the exact same know-how might be used to substantiate the place on this planet processors are. What’s extra, as a result of it’s essentially a little bit imprecise, it may be finished with out revealing probably delicate data like exact information middle places that corporations wish to preserve non-public.
Earlier proposals additionally included “geofencing,” which might act as a sort of distant kill swap for smuggled chips. However issues that such a capability might be hacked by rogue actors have satisfied many consultants that geofencing can be unworkable. With out this fencing part, 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’ll’t shut it down.
What that may allow, although, is enforcement prioritization. “If in case you have, say, an entity in Singapore that you just ship half an information middle’s value of chips to, they usually boot up, and instantly 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 dangerous actors.”
That is particularly essential provided that the Bureau of Trade and Safety, the division on the Commerce Division accountable 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 in opposition to Russia, Iran, and others. “We spend one hundred pc of our time on Russia sanctions, one other one hundred pc on China, and the opposite one hundred pc on every little thing else,” Matt Borman, the then-deputy assistant secretary of commerce for export administration, informed the New York Occasions that yr. The company would clearly profit from a instrument that might inform it the place to prioritize enforcement in opposition to smuggling.
To be clear, location verification is one in every of a number of methods to battle smuggling, and smuggling is just one of a number of methods to restrict China’s entry to compute. Chinese language companies may entry processors at abroad information facilities run by the likes of Amazon or Microsoft; US regulators are likely to favor 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 corporations, however it’s nonetheless a serious useful resource. The agency Huawei can be actively making an attempt to construct up a line of chips to rival Nvidia’s and finally 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 experiences that Trump gave floor on H20s in trade 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 important factories in Taiwan, they drove up the minerals’ costs and represented an oblique manner China might squeeze the US on AI.
All of which is to say: the battle for compute stays extremely high-stakes and either side have highly effective levers they’ll pull to affect the worldwide provide of compute. Trump’s H20 transfer doubtless elevated China’s and scale 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 might alter the stability dramatically.
It will be a mistake to view this as only one extra Trump commerce battle. Whereas Trump’s normal protectionism relies on pretty crankish financial views and misplaced nostalgia for Seventies America, the export controls have been primarily based 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 doubtless future stability of US and Chinese language energy.
Compute is totally different, whether or not Trump treats it that manner or not, and if Chinese language companies begin to catch as much as US AI labs within the coming months, we’ll doubtless look again on the H20 determination as the beginning of the shift.
