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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. For years, the US

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Speaker 1: government has restricted American chip companies from exporting their most

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Speaker 1: advanced semiconductors to China, hoping to curb China's rapidly growing

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Speaker 1: AI industry.

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Speaker 2: These new rules will be announced, perhaps as early as

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Speaker 2: this week, to essentially strengthen the export restrictions on advanced

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Speaker 2: semiconductors in areas that China obviously wants to dominate.

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Speaker 1: The strategy started when Joe Biden was president, and for

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Speaker 1: a time it was also embraced by President Donald Trump.

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Speaker 2: Trump and his team are planning to expand efforts.

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Speaker 3: To limit China's tech advancements, including tougher chip curbs.

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Speaker 1: But this week Trump made a big exception. Shall we

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Speaker 1: negotiate a little deal? The President said he would let

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Speaker 1: two of the biggest US chip companies, Nvidia and Advanced

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Speaker 1: micro Devices or AMD, sell some of their less advanced

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Speaker 1: chip models to China. Again. But there's a catch. The

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Speaker 1: companies have agreed to share fifteen percent of the revenue

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Speaker 1: from those sales with the US government. I said, if

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Speaker 1: I'm going to do that, I want you to pay

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Speaker 1: US as a country. Something how unusual is a deal?

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Speaker 4: Like this unprecedented.

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Speaker 1: Jodo covers economic state craft for Bloomberg.

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Speaker 4: There's this national security question and this like pay to

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Speaker 4: play question. I think the pay to play is pretty obvious, right,

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Speaker 4: Oh my gosh, We're gonna have to start paying a

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Speaker 4: fee to do business in China. But also does that

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Speaker 4: mean now that like anything's up for sale at the

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Speaker 4: right price.

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Speaker 1: Trump's latest move isn't just being called unprecedented. Some trade

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Speaker 1: experts and US lawmakers are even questioning if it's legal.

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Speaker 4: This is just another example and a long line of examples,

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Speaker 4: how the Trump administration is using policy to generate revenue

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Speaker 4: for the federal government in ways that have just never

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Speaker 4: been considered before.

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Speaker 1: I'm Sarah Holder, and this is the big take from

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Speaker 1: Bloomberg News today on the show. Inside the deal that

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Speaker 1: would give the US government a cut of chip sales

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Speaker 1: to China. What it means for the global AI race

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Speaker 1: and for the future of free trade. If there's anything

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Speaker 1: we've learned about President Trump's economic strategy, it's that even

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Speaker 1: after he announces a deal, the deal's terms often continue

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Speaker 1: to shift. So I asked Jodo to walk us through

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Speaker 1: what we know and what we don't yet know about

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Speaker 1: the agreement the federal government has made with two major

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Speaker 1: US chip manufacturers, Nvidia and AMD.

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Speaker 4: What the President has told the American people is he

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Speaker 4: cut a deal with AMD and Nvidia. And you know,

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Speaker 4: the President said, listen, these two companies have greed with

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Speaker 4: me to give us fifteen percent of their revenue generated

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Speaker 4: from chip sales to China. Now, specifically, it's a chip

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Speaker 4: technology that's not their top of the line. It is

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Speaker 4: like one of their secondary or tertiary chips.

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Speaker 1: In Vidia's lower tier chip is called the H twenty.

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Speaker 1: The company actually developed the model specifically for the Chinese

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Speaker 1: market to comply with the Biden administration's export controls. AMD

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Speaker 1: has its own version, too, called the m I THREEH eight.

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Speaker 1: These chips are still powerful, but Trump officials have downplayed

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Speaker 1: their national security implications, noting they're not as powerful as

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Speaker 1: some other models.

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Speaker 4: The Blackwell chips that in Vidia makes are like the

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Speaker 4: Crem Dela Creme, the Rolls Royce, if you will.

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Speaker 1: Those Blackwell chips aren't eligible for the administration's carve out,

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Speaker 1: at least not yet. This week, Trump signaled he would

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Speaker 1: be open to future deals that allow Nvidia to sell

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Speaker 1: a less sophisticated version of the Blackwell to China. But

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Speaker 1: it's a pretty stark reversal from a stance that both

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Speaker 1: Trump and former President Biden have helped that in order

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Speaker 1: to keep the US ahead in the AI race and

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Speaker 1: to prevent China from developing everything from missiles to cyber

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Speaker 1: warfare capabilities, the US has to hold on to its

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Speaker 1: advanced chip tech.

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Speaker 4: I think it goes to the basic AI kind of

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Speaker 4: revolution that we're seeing. The United States is the forefront

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Speaker 4: of these AI chips. I mean, we hear it feels

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Speaker 4: like every day just a NonStop news stream of well,

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Speaker 4: you know, Chat, schipt and all these other AI platforms

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Speaker 4: are changing work, They're changing the world, They're changing everything,

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Speaker 4: and the chip technology is progressing quickly and China isn't

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Speaker 4: where the United States is. There is always going to

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Speaker 4: be a concern among Hawks that whoa hold on We

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Speaker 4: considered China an adversary. Why should they have their hands

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Speaker 4: on technology that is ours that they could use to

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Speaker 4: advance their own.

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Speaker 1: Technologies, Right, So the US government had a position before

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Speaker 1: that US companies should not be selling these tips to

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Speaker 1: China so that China could not get ahead of us

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Speaker 1: in the AI race.

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Speaker 4: Yeah, I mean We went through this during the first

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Speaker 4: Trump administration and it was like these three oh one tariffs,

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Speaker 4: sectoral teriffs, right, Everything trade related for Trump during the

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Speaker 4: first administration was China overproduces, it has over capacity, which

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Speaker 4: creates gluts across all industries in the world, and so

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Speaker 4: we're going to shut China out of our market by

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Speaker 4: putting up these high tariff barriers. So this time, around

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Speaker 4: four years later, after the last Trump administration ended, those

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Speaker 4: tariff barriers were pretty much still intact, and the question

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Speaker 4: became like, well, how much higher can you make the barriers.

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Speaker 4: The President came out on April second and announced the

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Speaker 4: reciprocal tariffs that, as we all remember, caused a massive

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Speaker 4: freak out in global markets, and part of that was

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Speaker 4: announcing these almost absurd tariff numbers on China right over

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Speaker 4: one hundred percent. And the response that we saw from China,

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Speaker 4: the meaningful response two days later, was an announcement that

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Speaker 4: it had put export bans on rare earth materials and importantly,

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Speaker 4: these so called rare earth permanent magnets. That became a

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Speaker 4: big problem because you had aerospace companies, automobile companies, defense

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Speaker 4: related companies going to the White House and saying we

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Speaker 4: need these, and China knew this, and this became the

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Speaker 4: centerpiece of the trade negotiations between the United States and

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Speaker 4: China for the next few months. Our leverage in that

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Speaker 4: negotiation were the chip technologies.

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Speaker 1: That meant tightening export controls on all US chips. US

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Speaker 1: companies would now need special permission to sell them to China.

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Speaker 4: In other words, the Commerce Department issues export licenses on

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Speaker 4: sensitive technologies that it doesn't want other nations or adversarial

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Speaker 4: nations to necessarily have carte blanche access to.

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Speaker 1: But over the past month, the Trump administration has started

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Speaker 1: to loosen its grip. Here's Commerce Secretary Howard Lutnik on

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Speaker 1: CNBC last month, right after the administration first signals it'd

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Speaker 1: be easing restrictions on certain chip sales.

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Speaker 4: So we try to play that balance.

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Speaker 2: We don't sell them our best stuff, not our second

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Speaker 2: best stuff, not even.

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Speaker 4: Our third best. I think fourth best is where we've

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Speaker 4: come out that we're cool. So on some level, it

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Speaker 4: felt like the deal to cut a deal of a

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Speaker 4: fifteen percent revenue was a way of saying, hey, listen,

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Speaker 4: the trade off here is, yes, while we're giving these

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Speaker 4: chips to China, let's make some money on behalf of

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Speaker 4: the American people in these deals, right if you will.

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Speaker 4: That the trade off that the companies have to do

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Speaker 4: to do business in China is they give us a

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Speaker 4: nice little cut of that.

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Speaker 1: Where is this revenue supposed to go?

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Speaker 4: Don't know? Yeah, I mean that's a great question. It's

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Speaker 4: unclear where this money is going to go. I mean

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Speaker 4: I've talked to a number of experts who have spent

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Speaker 4: their lives covering sovereign wealth funds, and you know, sovereign

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Speaker 4: wealth funds are like pretty straightforward, right. It's a country

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Speaker 4: that generates revenue off of you know, oftentimes like a

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Speaker 4: natural resource that is highly abundant within the country. Sorry,

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Speaker 4: area is a great example, Right, So they make a

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Speaker 4: lot of money off of oil production. And so where

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Speaker 4: does all of that money go to. Well, let's put

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Speaker 4: it in a sovereign wealth fund, and let's deploy that

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Speaker 4: capital to invest in all sorts of other things for

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Speaker 4: the benefit of the country. The United States doesn't have

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Speaker 4: a cemern wealth fund. Donald Trump at the beginning of

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Speaker 4: his term said let's create one, and then effectively they

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Speaker 4: kind of put it on the back burner a few

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Speaker 4: months ago. But since then all of these new revenue streams,

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Speaker 4: supposed revenue streams have popped up, and the question is

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Speaker 4: starting to rise, like where will this money go?

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Speaker 1: One of the biggest criticisms of this move is the

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Speaker 1: potential of the Pandora's box. It might open the idea

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Speaker 1: that this could open the door to other kinds of

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Speaker 1: pay to play relationships. What are other criticisms of this

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Speaker 1: move from trade experts?

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Speaker 4: The export control question itself, which is export controls were

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Speaker 4: always viewed by trade experts as not a part of

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Speaker 4: trade negotiations. Export controls, export licenses are taken very seriously

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Speaker 4: by all countries because they are built around this idea

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Speaker 4: of how much of your own intellectual property do you

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Speaker 4: want to export to other nations. That is a serious

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Speaker 4: concern that has been a constant conversation among trade experts

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Speaker 4: now for months because at the core of this, this

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Speaker 4: AMD Nvidia revenue share is an export control license, right, Okay,

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Speaker 4: So to get your licenses you will give us a

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Speaker 4: fifteen percent cut.

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Speaker 1: Is that legal?

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Speaker 4: That's a major question. The House Select Committee on China's

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Speaker 4: chairman sent us a statement in which he questioned the

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Speaker 4: legality of doing this. I have heard other trade experts

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Speaker 4: who said there is a way around this, which is

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Speaker 4: you don't write into the actual export licenses that a

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Speaker 4: cut is going to the United States federal government. It

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Speaker 4: is written in the Constitution that you can't have export taxes,

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Speaker 4: But it feels like talking to a number of trade

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Speaker 4: experts and to a couple lawyers, it feels like you

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Speaker 4: can find a way around that. And ultimately a lot

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Speaker 4: of people keep saying, hey, it's up to Congress, like

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Speaker 4: if they actually do have a problem with this, they

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Speaker 4: have the ability to step in.

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Speaker 1: How do you see this as part of Trump's recent

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Speaker 1: record of interfering with the way companies are doing business

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Speaker 1: or at least putting his thumb on the scale in

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Speaker 1: these kinds of business transactions.

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Speaker 4: So we have this chips situation. We have of these

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Speaker 4: country level trade deals like the EU and Japan are

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Speaker 4: really good examples where there was like a quasi fund

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Speaker 4: attached to the back of it, slightly different, not a

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Speaker 4: revenue generation, but like the US Steel Nippon Steel deal

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Speaker 4: that kind of captured a lot of attention, an old

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Speaker 4: steelmaker being popped by a Japanese company. Nippon Steel, agreed

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Speaker 4: in the deal to happen to give Donald Trump a

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Speaker 4: golden share hymn, specifically in which the President of United

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Speaker 4: States would be able to make direct decisions in corporate matters.

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Speaker 1: After the break the competing arguments over national security, why

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Speaker 1: US companies agreed to the President's deal to begin with,

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Speaker 1: and the ripple effect it could have on other industries

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Speaker 1: doing business in Trump's second term. I've been talking to

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Speaker 1: Bloomberg Economic state Craft reporter Joe do about the Trump

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Speaker 1: administrations deal with US chip companies to allow some sales

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Speaker 1: of their technology to China for a price. The original

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Speaker 1: argument for expert controls on chips to China was that

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Speaker 1: there were national security concerns and competition concerns. Right, have

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Speaker 1: those concerns gone away or is it just that other

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Speaker 1: motivations are outweighing them.

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Speaker 4: They haven't gone away, and I think at play here

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Speaker 4: are different theories. So the CEO of Nvidia has kind

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Speaker 4: of argued, well, we need access to the Chinese market.

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Speaker 4: We should be a player there on a competitive level

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Speaker 4: and prove that we are number one. You know that

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Speaker 4: our chips are more in demand than what the Chinese

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Speaker 4: semiconductor industry can produce, and let us just go toe

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Speaker 4: to toe with them.

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Speaker 1: In an interview with Bloomberg TV in May, and Nvidia's

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Speaker 1: CEO Jensen Huang argued that allowing Nvidia to sell chips

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Speaker 1: in China would help deepen country's reliance on US tech

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Speaker 1: and prevent Chinese competitors from getting ahead.

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Speaker 4: Without American technology.

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Speaker 3: The availability of Chinese technology will fill the market and.

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Speaker 4: On some level, like from purely capital market standpoint, that

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Speaker 4: makes sense. But you know that's where politics and Wall

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Speaker 4: Street can never really separate themselves, and the national security

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Speaker 4: experts have a different point of view, which is like, well,

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Speaker 4: it's a little more nuanced than that.

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Speaker 3: Right.

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Speaker 4: That ignores the fact that sometimes other actors may not

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Speaker 4: have capital market interests at heart, right, they may have

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Speaker 4: their own ulterior motives. This is a great example of

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Speaker 4: seeing the profit maximizers but heads with the people always

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Speaker 4: considering the worst case scenario.

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Speaker 1: What about how China has responded to this deal. Are

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Speaker 1: they eager to start buying AGE twenty chips from Nvidia again?

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Speaker 1: For example?

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Speaker 4: I mean, we had some really nice reporting from some

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Speaker 4: of our colleagues who reported actually, right now, Chinese officials

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Speaker 4: are saying to not buy these chips, and it was

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Speaker 4: a question that our reporters on Bloomberg Television put in

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Speaker 4: front of Treasury Secretary Bestent. Hey, yeah, if you can't

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Speaker 4: sell into the Chinese market, then what does any of

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Speaker 4: that matter?

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Speaker 1: And I mean for Nvidia, obviously it seems like they

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Speaker 1: want to continue to be able to sell their products

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Speaker 1: to as many people as possible. But why did they

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Speaker 1: agree to pay the federal government fifteen percent of their revenue?

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Speaker 1: Is that surprising to you? Is there any information about

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Speaker 1: their thought process?

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Speaker 3: There?

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Speaker 4: Absolutely If any company is still going out there saying

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Speaker 4: we're willing to give an x cut of our revenue

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Speaker 4: generated from sales in the open market to the federal

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Speaker 4: government in the United States like that, regardless of the company,

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Speaker 4: that to me is shocking. Why did they do it?

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Speaker 4: I mean, you know, I think you'd have to leave

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Speaker 4: it up to them. But the experts in the space say, listen,

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Speaker 4: if you're a company and you have a big market

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Speaker 4: in China and you have a president who is constantly

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Speaker 4: focused on decoupling from China and cutting China out of

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Speaker 4: your markets, that could be problematic.

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Speaker 1: And Video does have a big market in China. In

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Speaker 1: the first quarter of this year, it said it made

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Speaker 1: four point six billion dollars in revenue from Age twenty

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Speaker 1: chips alone. The company said it could have made two

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Speaker 1: point five billion dollars more in revenue if export controls

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Speaker 1: hadn't been imposed at the end of April, and Joe

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Speaker 1: says that could explain in Video's calculus.

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Speaker 4: Here are you willing to save that revenue stream by

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Speaker 4: giving concessions that would otherwise be just considered insane or

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Speaker 4: or just have no precedent, maybe because eighty five percent

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Speaker 4: still better than zero percent in the minds of these companies.

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Speaker 1: Right, it goes against everything that we think is true

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Speaker 1: about trade and about business interests in some ways.

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Speaker 4: Yeah, because I mean we've all taken like an ECO

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Speaker 4: one oh one course in our lives, whether it's like

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Speaker 4: in college or in high school, you probably took some

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Speaker 4: sort of economics study like this is not in the textbook, Joe, I.

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Speaker 1: Want to end by looking closer at those potential ripple effects.

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Speaker 1: Treasury Secretary Scott Bessant was on Bloomberg TV this week

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Speaker 1: and he said he thought this model could be used

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Speaker 1: in other industries over time.

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Speaker 4: Is it unique to Nvidia an empty or is this

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Speaker 4: a motto for other companies.

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Speaker 3: I think we could see it in other industries over time.

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Speaker 3: I think, you know, right now this is unique, But

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Speaker 3: now that we have the model and the beta test,

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Speaker 3: why not expand it?

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Speaker 1: What kinds of industries do you think the administration might

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Speaker 1: try to replicate this approach with and what are the implications.

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Speaker 4: I have already heard at least one source saying that

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Speaker 4: they had had a client reach out to them asking

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Speaker 4: it if they should be concerned about a fee or

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Speaker 4: a pay to play. And I don't want to get

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Speaker 4: into what the market was, but it was definitely not

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Speaker 4: in the chips space, and it definitely wasn't even in

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Speaker 4: a space that like most people would think about on

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Speaker 4: a daily basis. But if somebody in a rather niche

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Speaker 4: market is asking that question, I mean, that's like, wow,

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Speaker 4: you know, that's kind of wild to me. I had

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Speaker 4: to source say to me, you know, the slippery slope

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Speaker 4: is the question for anybody you know on the trade space. Right,

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Speaker 4: So in a commerce, do you suddenly have a situation

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Speaker 4: where companies that are trying to get meetings with trade

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Speaker 4: agencies within the United States government, do they have to

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Speaker 4: pay a fee to get those meetings to have those conversations.

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Speaker 4: Is there a question about defense contracts? Do you suddenly

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Speaker 4: have to worry about the bidding process where there's going

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Speaker 4: to be an ask on behalf of the federal government

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Speaker 4: that to get a contract you have to give something

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Speaker 4: in return for that. These are all hypotheticals, right, This

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Speaker 4: is not happening. I want to be clear about that.

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Speaker 4: But like, those are the questions that come to mind,

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Speaker 4: and I think that you're going to see companies begin

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Speaker 4: to try to figure out themselves as the days move forward.

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Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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