Nvidia to Pay U.S. Government Unprecedented Fee for Export License

What Happened?

The U.S. government will impose a 15% fee on certain Nvidia and AMD chip sales to China as a condition of granting them export licenses to sell in the country according to the Trump Administration. The fees apply to sales of Nvidia’s H20 chip as well as AMD’s MI308 chip, both of which are important for several artificial intelligence (AI) applications. 

Nvidia issued a statement saying, ‘We follow rules the U.S. government sets for our participation in worldwide markets. While we haven't shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide.’

Why it Matters

The Trump Administration had previously objected to Nvidia’s export of H20 chips to China on national security grounds, arguing that the sale would allow China to use the chips in its military systems which could then pose a threat to the United States. Under the terms of the agreement, Nvidia and AMD will give the U.S. government a portion of their sales as a prerequisite to obtaining export licenses for China. 

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The new fee structure may face court challenges because it could be seen as a violation of the U.S. Constitution’s prohibition on export taxes. According to Peter Harrel, a former senior official in the Biden Administration, ‘In addition to the policy problems with just charging Nvidia and AMD a 15% share of revenues to sell advanced chips in China, the U.S. Constitution flatly forbids export taxes.’ Christopher Padilla, a senior export official for George W. Bush, called the arrangement ‘unprecedented and dangerous.’

Despite the move by the Trump Administration to authorize the sale of Nvidia’s H20 chips to China, yesterday a social media account affiliated with Chinese state television posted an article saying that the H20 chips represented a threat to China’s national security because of potential backdoor access. The account urged citizens and Chinese companies not to buy the chips or to use products that have the H20 chips as a component.

Nvidia’s H20 chip is primarily designed for AI inference (using trained models to make predictions) rather than training large AI models, which require more computational power. That makes the chip potentially useful for a wide range of AI applications. According to Nvidia, the H20 chip incorporates features like Tensor Cores for efficient AI calculations, Multi-Instance GPU for running multiple AI workloads concurrently, and NV Link for high-speed communication between chips.

How it Affects You

Nvidia currently has an estimated market cap of over four trillion dollars, the most of any private company in the world. The sale of H20 chips to China could generate billions of dollars in revenue, which would in turn mean billions in fees paid to the U.S. government. 

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