Nvidia, AMD, and Trump

The breakdown of the international trade order and the new risks to businesses, especially those dealing in dual use goods.

Commercial Summary: A new form of statism is taking shape under American President Donald Trump. The new trade rules are that there are no rules. The free market as you know it is over, especially for any product with military applications.

On 11 August, media reported that AMD and Nvidia, two microchip giants, would pay the American Treasury 15% of all revenue generated in China - not profits, revenues. In exchange, the Trump administration licensed the export of top end chips to China. The companies probably found it cheaper to comply with Trump’s demands than to lose access to the Chinese market, while accepting that this compliance only opens the door to more demands, including the return of manufacturing capacity to the USA and more robust future IP laws.

Trump and Nvidia, according to Grok.

This decision is almost certain to be legally challenged, most likely by these corporations shareholders: no specific new tax was passed by Congress, nor were there any trade agreements that reflected this new levy. Rather, this is the USA collecting export taxes from companies on a selective, ad hoc basis. This gives Trump leverage over companies, is probably less risky and costly for companies than facing Trump (given his ability to get the DOJ, the IRS, the FBI, and others to look into any particular company he does not like), and allows him to manage the trade conflict with China while still generating revenue for the American Treasury. It also encourages separation of the Chinese and American supply chains in sensitive sectors. Moreover, it reflects a complete break with the idea of stable and predictable trade rules.

Commercial Implications

• The USA is trying to manage the trade war with China and keep it from escalating too dramatically. In exchange for giving China access to top end chips required for AI and other forms of advanced computing, it is almost certain that China will ease export restrictions on rare earth minerals and other materials. This reflects China’s own strong leverage in this trade war, stemming from the West’s de-industrialisation.

• We are headed towards a managed, permanent, trade conflict, focussed on reducing deficits and building up autonomy through industrial policy.

• Trade will no longer depend on well-defined rules. Novel barriers will be erected gradually and regularly. This is especially so for military and dual use products.

• A key issue here will be the definition of dual use goods: as China, Russia, Turkey, India, Pakistan, and the USA accelerate their arms race, anything from coatings to steel to microchips can be defined as dual use.

• The trade relationship between the USA and China will be constantly in flux, depending on technology developments, economic data, monopolistic control of key resources, currency movements, and more. The eventual aim, however, is complete separation of militarily sensitive supply chains, a process that will depend on the West succeeding in defining and implementing an industrial policy that releases it from dependence on China. As the two behemoths escalate their conflict, however, more and more goods will be defined as strategically sensitive.

• China’s response will be to continue to find ways to bypass American trade barriers. To which the USA will respond by getting ever more involved in the day to day business of major corporations with dual use or military products. Sudden surges in exports to (or imports from) countries like Malaysia, Georgia, or the UAE, which act as re-export hubs, will be investigated, requiring deeper cooperation between federal authorities and big corporations.

• This will increasingly blur the line between the private sector and the state, with the West following China’s lead (or the lead of major American technology companies).

• The Trump administration will still demand that the Chinese (and other trading partners) reduce their trade deficit with the USA, including by purchasing raw materials and natural resources, such as agricultural products.

• The Americans may expand this strategy of selective export taxes, and may also choose to tariff specific companies exporting into the USA, to target Europe, Japan, South Korea, or other countries. In turn, these countries may in retaliate in kind.

• Trump may wield selective tariffs or export taxes against companies that fail to invest enough in the USA, or to extract revenue from companies that are exporting sensitive products or products with no other suppliers. This is pure and simple mercantilism.

• The precedent being set is that there are no rules here, only revenue maximisation in the hope of imposing reindustrialisation and autarky, at least for NATO and its allies.

• For a deeper conversation about the vulnerabilities relating to your company, do please reply to this email.

• Other companies that will likely be affected by this type of special taxation include: