The Trump NVIDIA Taco

The Trump administration decision to sell advanced semiconductors to China is receiving wide spread criticism from both Republicans, Democrats, China hawks, and even some semi-criticial disbelief by the more dovish. Let us critically break down the decision and why it is a negative for the United States.

A decision must be weighed based upon the potential positives and negatives with the balance pointing us to the direction we should pursue. Given this simple framework we must ask what are the positives and negatives of this decision.

Leave aside the national security implications for the moment, there is already overwhelming demand for the NVIDIA product at almost any price point within the United States. Therefore, given an effectively fixed production, any increase in sales to China is by definition reducing sales to the United States. Put another way, the Trump administration decided to prioritize Chinese technological development over the United States.

Then if we consider the national security implications, the decision appears even worse. China uses technology and United States firms across a range of security domains to help oppress the Chinese people and expand their military to threaten the United States and their allies. From simulated missile tests and surveillance at a scale few understand. The Trump administration is actively assisting the Chinese military and security state with this decision.

All of the arguments for this move publicly advanced by the Trump administration fall short. For instance, David Sacks has tried to advance the argument that we can make China dependent upon the United States tech stack. This betrays a complete lack of knowledge about your adversary if Mr. Sacks actually believes him selling some NVIDIA chips to China can make China dependent on the US tech stack. Entire books have been written about the delusions of foreigners believing they could accomplish this and none have succeeded much less with under the hardened authoritarianism of Chairman Xi.

Nor is the economic benefit relevant. Because we are dealing with a full market with lots of competitors but one company with an effectively fixed output, the economic benefit will be near zero to the American worker because production will only increase marginally if at all. Even to NVIDIA the difference will be marginal because their production is effectively already sold out for years into the future. This change does not expand an existing market but reallocate away from United States and allied country firms and towards China so any change is very small.

Given even the brief review of the positives and negatives it is hard to understand the logic behind this decision, where the negatives clearly outweigh the positives. Though this is a bad decision, there are upsides. The known security risks of NVIDIA chips and Chinese models will open up a wide variety of sensitive Chinese sites to anyone seeking Chinese data. Just last week I showed you examples of Chinese devices using GPUs to process facial recognition data, so placing these chips at key clusters will give the US deep insight into what China is doing with these chips. In a way, it is interesting that Trump appears to have convinced Xi to take these chips given what this enables.

There is also the question of how this will reverberate across other domains. Not difficult to believe that Europeans, looking straight at Holland with Nexperia and ASML, being told to not sell to China will be less receptive to that urging.

The Trump administration has done more to disentangle the United States from China, but this rightfully so is a clear black mark on their record that threatens to derail their entire agenda. Coupled with the TikTok decision, it looks like the Trump administration can be persuaded when the price is right to approve China deals even when they go against American interests.