NVIDIA's H20 AI accelerator was permitted for export to China in a trade-off with rare earth metals, reveals the US Commerce Secretary, but was the deal worth it?
The Trump Administration Wants to Make Chinese AI Engineers "Addicted" to American Tech, In Exchange for Rare Earths
Well, last week, NVIDIA's CEO Jensen Huang immediately announced while being in Beijing that the Trump administration would lift the ban on the H20 AI accelerator, and it was seen as a decision to ease off the pressure on Team Green and its business in China. However, this move has a far bigger reason, which Howard Lutnick revealed to the public recently. In an interview with CNBC, the US Commerce Secretary verified that AI chips were part of the recent trade talks, and that the decision on the H20 AI accelerator was made according to it.
SULLIVAN: Well, I’m watching CNBC, as well as being on CNBC, and I’m looking at Nvidia getting a deal to be allowed to sell certain chips and do more business into China. That’s coming from this administration. Is that a change of heart?.
LUTNICK: Well, it’s funny, because the Biden administration allowed China to buy these chips last year. So, then we held it up, and then, in the magnets deal with the Chinese, we told them that we would start to resell them
Well, this is a fairly important detail to check out, considering that the markets perceived it as a "change of heart" decision. In reality, the US did use NVIDIA's AI chips as leverage for the trade deal. This shows that the Trump administration knows how important the H20 AI accelerator is for Chinese AI companies and that Beijing is ready to trade it for one of their most "prized possessions," the supply of rare earths to the US. Of course, there were other talks involved, but it seems like AI chips saw a far more greater influence over the deal than what is perceived.
For Beijing, now that NVIDIA has entered the domestic markets once again, the pursuit of localized AI solutions, such as those from Huawei, will see a relative decline since local tech giants are more interested in what NVIDIA offers. The Trump administration has sided with Jensen's narrative that populating American tech in China is what would allow them to maintain their AI dominance. According to Lutnick, NVIDIA must be able to "sell the Chinese enough that their developers get addicted to the American technology stack".
Interestingly, China's Ministry of Commerce recently responded to the H20 ban lifted by the Trump administration, and they expressed appreciation for the initiative. The Chinese government hasn't confirmed yet if the rare earths deal involved AI chips. Here's what they had to say:
We have noticed that the US has recently taken the initiative to approve the sale of Nvidia H20 chips to China. China believes that the US should abandon its zero-sum mentality.
For now, NVIDIA is gearing up for its entry back into the China AI market. While there are many complications with the H20, particularly concerning inventory levels and how suppliers like TSMC need to re-adjust production lines for further supply of the H20 AI chip, NVIDIA has suddenly become optimistic about its future in China. However, it would be interesting to see how the situation evolves ahead, especially considering that apart from the H20, would NVIDIA get the chance to sell new and advanced chips?
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