An Immediate Collusion with Dissonance
This unprecedented standoff could injure NVIDIA and the future of the administration's plans to relieve the US debt. Aimed at imposing a 15% tax on the sale of NVIDIA's new H20 AI chips to China, Beijing has allegedly ordered its tech enterprises to halt purchases of said chips immediately over security concerns.
The United States Plan A VAT on AI Chips to Pay for the National Debt
The plan is now confirmed by Treasury Secretary Scott Bessent, who, in mentioning President Trump, characterized NVIDIA's H20 chip potentially benefiting American taxpayers as a policy switch away from "unfettered competition" towards "secure or fair trade." Revenue from combined NVIDIA and AMD AI GPU sales to China has been earmarked for the national debt.
The administration has had little to say about possible national security issues; in fact Bessent argued that the H20 chips represent "four, five, six levels down the chip stack" and are not the most advanced available. He believed that federal taxation could benefit NVIDIA, making its chip the "bellwether for Chinese technology" with the success shared by taxpayers.
Beijing's Response Halting Purchases Over Security Concerns
China, however, seems to hold a radically divergent view from that of the US. The Information indicates that Chinese authorities order their tech giants such as ByteDance, Alibaba, and Tencent to refrain from purchasing NVIDIA's H20 chip due to Beijing's serious concern over the potential existence of security backdoors.
Such potential fears included that the H20 chip data may contain the capability of geolocation tracking or a "kill switch" that would give Washington power to track or disable the hardware. Arguably, this distrust is further inflamed by President Trump's "AI Action" plan, reportedly stating that chips exported to China would indeed have backdoor capabilities, something NVIDIA vehemently denied.
NVIDIA Is in a Geopolitical Chess Game for Billions
This outright clash leaves NVIDIA in the most uncomfortable position. Although the company had initially thought it might get some $12 billion from China, it now risks losing this altogether with a government-mandated stop on purchases by its largest customers.
On opposite ends of the spectrum of how the game is perceived:
- American View: For Bessent, "NVIDIA chips become a standard in China" in the eyes of Chinese authorities, who fear that "Chinese technology is piggybacking on US technology".
- Chinese View: Beijing sees a potential of embedded US surveillance of critical infrastructure and it is taking bold steps to protect its digital sovereignty.
Ultimately, plans to charge tax on a revenue stream are now being undermined by the declared unwillingness of the recipient country to permit even its existence. The success of the "NVIDIA Tax" policy now lies in conquering deep-rooted security mistrust from Beijing, a challenge that seems to be on the rise rather than waning.
