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Trump caving on Nvidia H20 export curbs may disrupt his bigger trade war [arstechnica.com]:

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The next front in Donald Trump's trade war will be chip tariffs—which could come by next month—but national security experts are warning that the president may have already made a huge misstep that threatens to disrupt both US trade and national security.

In a letter [ari.us] Monday to Department of Commerce Secretary Howard Lutnick, 20 policymakers and professionals with a background in national security policy urged Trump to reverse course and block exports of Nvidia's H20 chips to China.

In April, the Trump administration decided against imposing additional export curbs on H20 chips after Nvidia CEO Jensen Huang paid $1 million for a seat at a Mar-a-Lago dinner, NPR reported [npr.org]. Apparently, Nvidia's promise to invest $500 billion in AI data centers helped persuade Trump to change course, as did the terms of a temporary truce with China, in which the US promised to halt H20 chip controls in exchange for China restoring imports of rare earth minerals into the US.

In their letter, national security experts expressed "deep concern" that Trump may not have considered how Nvidia's H20 chips could endanger the US military's "edge in artificial intelligence" while serving as a "potent accelerator of China’s frontier AI capabilities."

While these chips can't be used for AI training like the Blackwell and H100 chips still restricted by export curbs, they're "optimized for inference, the process responsible for the dramatic capabilities gains made by the latest generation of frontier AI reasoning models," experts warned.

Most likely, China will use the chips for AI models deployed by its military to "enable autonomous weapons systems, intelligence surveillance platforms, and rapid advances in battlefield decision-making," experts said. In that way, "by supplying China with these chips, we are fueling the very infrastructure that will be used to modernize and expand the Chinese military," they warned.

The Trump administration is notably investigating how chip tariffs and imports could harm national security, with a report due out in two weeks, Lutnick announced [reuters.com] today. That report will supposedly help Trump determine if relying too much on other countries for chips poses a national security threat.

But experts seem to fear that Trump isn't paying enough attention to how exports of US technology could threaten to not only supercharge China's military and AI capabilities but also drain supplies that US firms need to keep the US at the forefront of AI innovation.

"More chips for China means fewer chips for the US," experts said, noting that "China’s biggest tech firms, including Tencent, ByteDance, and Alibaba," have spent $16 billion on bulk-ordered H20 chips over the past year.

Meanwhile, "projected data center demand from the US power market would require 90 percent of global chip supply through 2030, an unlikely scenario even without China joining the rush to buy advanced AI chips," experts said. If Trump doesn't intervene, one of America's biggest AI rivals could even end up driving up costs of AI chips for US firms, they warned.

"We urge you to reverse course," the letter concluded. "This is not a question of trade. It is a question of national security."

Trump says he never heard of Nvidia before

Perhaps the bigger problem for Trump, national security experts suggest, would be if China or other trade partners perceive the US resolve to wield export controls as a foreign policy tool to be "weakened" by Trump reversing course on H20 controls.

They suggested that Trump caving on H20 controls could even "embolden China to seek additional access concessions" at a time when some analysts suggest that China may already have an upper hand in trade negotiations.

The US and China are largely expected to extend a 90-day truce following recent talks in Stockholm, Reuters reported [reuters.com]. Anonymous sources told the South China Morning Post [scmp.com] that the US may have already agreed to not impose any new tariffs or otherwise ratchet up the trade war during that truce, but that remains unconfirmed, as Trump continues to warn that chip tariffs are coming soon.

Trump has recently claimed that he thinks he may be close to cementing a deal with China, but it appears likely that talks will continue well into the fall. A meeting between Trump and Chinese President Xi Jinping probably won't be scheduled until late October or early November, Reuters reported.

For Trump, appearing weak on export controls could give China leverage. China's sticking point in negotiations is seemingly that the US is trying to stunt its growth through the trade war, Reuters noted. And a recent editorial in the People's Daily, "the mouthpiece of China’s ruling Communist Party," insisted that China remains "firmly opposed to any attempt to undermine the multilateral trading system through unilateralism and protectionism" like US export curbs, Reuters reported.

Since Trump already backed down from export curbs once, experts fear he may never revive the H20 curbs, possibly choosing to prioritize closing a potential trade deal with China over safeguarding national security. If other countries perceive that "tension"—that Trump will sacrifice national security priorities for trade war wins—it could result in more unfavorable outcomes, heightening national security risks in Trump's other trade deals, experts suggested.

For national security experts, it seems the time has come to scrutinize just how much Trump knows about AI or else risk "a strategic misstep that endangers the United States’ economic and military edge" in AI—"an area increasingly seen as decisive in 21st-century global leadership."

Their doubts about Trump's understanding of the AI industry may be warranted, given an eyebrow-raising admission Trump made while unveiling his AI Action Plan [arstechnica.com] last week.

During his speech, Trump confessed that he had threatened to break up Nvidia before he even knew what one of the world's most valuable AI companies even did, Tom's Hardware reported [tomshardware.com].

Calling Nvidia's Huang an "amazing" AI industry leader, Trump said he made the threat "before I learned the facts of life"—basically that a breakup would be "very hard" since Nvidia has somewhere between 70 to 95 percent of the market share for AI chips [cnbc.com]. Since Trump campaigned on using tariffs to strong-arm tech companies into diverting manufacturing into the US—partly to win the AI race—it seems surprising that he wouldn't be aware of the leading AI chip firm that depends heavily on both US and Chinese markets.

"I said, 'What the hell is Nvidia?' I've never heard of it before," Trump said just days ago. "I figured we could go in and we could sort of break them up a little bit, get them a little competition, and I found it's not easy in that business."

TACO (Trump Always Chickens Out)

Original Submission