WEBVTT - Why Trump Is Letting Nvidia Sell (Some) AI Chips to China

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. For years, the US

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<v Speaker 1>government has restricted American chip companies from exporting their most

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<v Speaker 1>advanced semiconductors to China, hoping to curb China's rapidly growing

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<v Speaker 1>AI industry.

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<v Speaker 2>These new rules will be announced, perhaps as early as

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<v Speaker 2>this week, to essentially strengthen the export restrictions on advanced

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<v Speaker 2>semiconductors in areas that China obviously wants to dominate.

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<v Speaker 1>The strategy started when Joe Biden was president, and for

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<v Speaker 1>a time it was also embraced by President Donald Trump.

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<v Speaker 2>Trump and his team are planning to expand efforts.

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<v Speaker 3>To limit China's tech advancements, including tougher chip curbs.

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<v Speaker 1>But this week Trump made a big exception. Shall we

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<v Speaker 1>negotiate a little deal? The President said he would let

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<v Speaker 1>two of the biggest US chip companies, Nvidia and Advanced

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<v Speaker 1>micro Devices or AMD, sell some of their less advanced

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<v Speaker 1>chip models to China. Again. But there's a catch. The

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<v Speaker 1>companies have agreed to share fifteen percent of the revenue

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<v Speaker 1>from those sales with the US government. I said, if

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<v Speaker 1>I'm going to do that, I want you to pay

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<v Speaker 1>US as a country. Something how unusual is a deal?

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<v Speaker 4>Like this unprecedented.

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<v Speaker 1>Jodo covers economic state craft for Bloomberg.

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<v Speaker 4>There's this national security question and this like pay to

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<v Speaker 4>play question. I think the pay to play is pretty obvious, right,

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<v Speaker 4>Oh my gosh, We're gonna have to start paying a

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<v Speaker 4>fee to do business in China. But also does that

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<v Speaker 4>mean now that like anything's up for sale at the

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<v Speaker 4>right price.

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

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<v Speaker 1>experts and US lawmakers are even questioning if it's legal.

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<v Speaker 4>This is just another example and a long line of examples,

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<v Speaker 4>how the Trump administration is using policy to generate revenue

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<v Speaker 4>for the federal government in ways that have just never

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<v Speaker 4>been considered before.

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<v Speaker 1>I'm Sarah Holder, and this is the big take from

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<v Speaker 1>Bloomberg News today on the show. Inside the deal that

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<v Speaker 1>would give the US government a cut of chip sales

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<v Speaker 1>to China. What it means for the global AI race

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<v Speaker 1>and for the future of free trade. If there's anything

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

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<v Speaker 1>after he announces a deal, the deal's terms often continue

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<v Speaker 1>to shift. So I asked Jodo to walk us through

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<v Speaker 1>what we know and what we don't yet know about

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<v Speaker 1>the agreement the federal government has made with two major

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<v Speaker 1>US chip manufacturers, Nvidia and AMD.

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<v Speaker 4>What the President has told the American people is he

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<v Speaker 4>cut a deal with AMD and Nvidia. And you know,

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<v Speaker 4>the President said, listen, these two companies have greed with

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<v Speaker 4>me to give us fifteen percent of their revenue generated

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<v Speaker 4>from chip sales to China. Now, specifically, it's a chip

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<v Speaker 4>technology that's not their top of the line. It is

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<v Speaker 4>like one of their secondary or tertiary chips.

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<v Speaker 1>In Vidia's lower tier chip is called the H twenty.

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<v Speaker 1>The company actually developed the model specifically for the Chinese

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<v Speaker 1>market to comply with the Biden administration's export controls. AMD

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<v Speaker 1>has its own version, too, called the m I THREEH eight.

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<v Speaker 1>These chips are still powerful, but Trump officials have downplayed

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<v Speaker 1>their national security implications, noting they're not as powerful as

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<v Speaker 1>some other models.

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<v Speaker 4>The Blackwell chips that in Vidia makes are like the

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<v Speaker 4>Crem Dela Creme, the Rolls Royce, if you will.

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

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<v Speaker 1>at least not yet. This week, Trump signaled he would

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<v Speaker 1>be open to future deals that allow Nvidia to sell

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<v Speaker 1>a less sophisticated version of the Blackwell to China. But

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<v Speaker 1>it's a pretty stark reversal from a stance that both

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<v Speaker 1>Trump and former President Biden have helped that in order

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<v Speaker 1>to keep the US ahead in the AI race and

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<v Speaker 1>to prevent China from developing everything from missiles to cyber

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<v Speaker 1>warfare capabilities, the US has to hold on to its

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<v Speaker 1>advanced chip tech.

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<v Speaker 4>I think it goes to the basic AI kind of

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<v Speaker 4>revolution that we're seeing. The United States is the forefront

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<v Speaker 4>of these AI chips. I mean, we hear it feels

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<v Speaker 4>like every day just a NonStop news stream of well,

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<v Speaker 4>you know, Chat, schipt and all these other AI platforms

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<v Speaker 4>are changing work, They're changing the world, They're changing everything,

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<v Speaker 4>and the chip technology is progressing quickly and China isn't

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<v Speaker 4>where the United States is. There is always going to

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<v Speaker 4>be a concern among Hawks that whoa hold on We

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<v Speaker 4>considered China an adversary. Why should they have their hands

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<v Speaker 4>on technology that is ours that they could use to

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<v Speaker 4>advance their own.

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<v Speaker 1>Technologies, Right, So the US government had a position before

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<v Speaker 1>that US companies should not be selling these tips to

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<v Speaker 1>China so that China could not get ahead of us

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<v Speaker 1>in the AI race.

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<v Speaker 4>Yeah, I mean We went through this during the first

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<v Speaker 4>Trump administration and it was like these three oh one tariffs,

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<v Speaker 4>sectoral teriffs, right, Everything trade related for Trump during the

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<v Speaker 4>first administration was China overproduces, it has over capacity, which

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<v Speaker 4>creates gluts across all industries in the world, and so

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<v Speaker 4>we're going to shut China out of our market by

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<v Speaker 4>putting up these high tariff barriers. So this time, around

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<v Speaker 4>four years later, after the last Trump administration ended, those

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<v Speaker 4>tariff barriers were pretty much still intact, and the question

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<v Speaker 4>became like, well, how much higher can you make the barriers.

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<v Speaker 4>The President came out on April second and announced the

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<v Speaker 4>reciprocal tariffs that, as we all remember, caused a massive

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<v Speaker 4>freak out in global markets, and part of that was

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<v Speaker 4>announcing these almost absurd tariff numbers on China right over

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<v Speaker 4>one hundred percent. And the response that we saw from China,

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<v Speaker 4>the meaningful response two days later, was an announcement that

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<v Speaker 4>it had put export bans on rare earth materials and importantly,

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<v Speaker 4>these so called rare earth permanent magnets. That became a

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<v Speaker 4>big problem because you had aerospace companies, automobile companies, defense

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<v Speaker 4>related companies going to the White House and saying we

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<v Speaker 4>need these, and China knew this, and this became the

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<v Speaker 4>centerpiece of the trade negotiations between the United States and

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<v Speaker 4>China for the next few months. Our leverage in that

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<v Speaker 4>negotiation were the chip technologies.

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<v Speaker 1>That meant tightening export controls on all US chips. US

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<v Speaker 1>companies would now need special permission to sell them to China.

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<v Speaker 4>In other words, the Commerce Department issues export licenses on

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<v Speaker 4>sensitive technologies that it doesn't want other nations or adversarial

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<v Speaker 4>nations to necessarily have carte blanche access to.

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<v Speaker 1>But over the past month, the Trump administration has started

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<v Speaker 1>to loosen its grip. Here's Commerce Secretary Howard Lutnik on

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<v Speaker 1>CNBC last month, right after the administration first signals it'd

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<v Speaker 1>be easing restrictions on certain chip sales.

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<v Speaker 4>So we try to play that balance.

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<v Speaker 2>We don't sell them our best stuff, not our second

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<v Speaker 2>best stuff, not even.

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<v Speaker 4>Our third best. I think fourth best is where we've

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

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<v Speaker 4>felt like the deal to cut a deal of a

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<v Speaker 4>fifteen percent revenue was a way of saying, hey, listen,

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<v Speaker 4>the trade off here is, yes, while we're giving these

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<v Speaker 4>chips to China, let's make some money on behalf of

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<v Speaker 4>the American people in these deals, right if you will.

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<v Speaker 4>That the trade off that the companies have to do

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<v Speaker 4>to do business in China is they give us a

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<v Speaker 4>nice little cut of that.

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<v Speaker 1>Where is this revenue supposed to go?

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

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<v Speaker 4>unclear where this money is going to go. I mean

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<v Speaker 4>I've talked to a number of experts who have spent

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<v Speaker 4>their lives covering sovereign wealth funds, and you know, sovereign

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

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<v Speaker 4>that generates revenue off of you know, oftentimes like a

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<v Speaker 4>natural resource that is highly abundant within the country. Sorry,

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<v Speaker 4>area is a great example, Right, So they make a

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<v Speaker 4>lot of money off of oil production. And so where

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

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<v Speaker 4>it in a sovereign wealth fund, and let's deploy that

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<v Speaker 4>capital to invest in all sorts of other things for

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<v Speaker 4>the benefit of the country. The United States doesn't have

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<v Speaker 4>a cemern wealth fund. Donald Trump at the beginning of

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<v Speaker 4>his term said let's create one, and then effectively they

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<v Speaker 4>kind of put it on the back burner a few

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<v Speaker 4>months ago. But since then all of these new revenue streams,

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<v Speaker 4>supposed revenue streams have popped up, and the question is

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<v Speaker 4>starting to rise, like where will this money go?

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<v Speaker 1>One of the biggest criticisms of this move is the

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<v Speaker 1>potential of the Pandora's box. It might open the idea

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<v Speaker 1>that this could open the door to other kinds of

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<v Speaker 1>pay to play relationships. What are other criticisms of this

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<v Speaker 1>move from trade experts?

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<v Speaker 4>The export control question itself, which is export controls were

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<v Speaker 4>always viewed by trade experts as not a part of

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<v Speaker 4>trade negotiations. Export controls, export licenses are taken very seriously

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<v Speaker 4>by all countries because they are built around this idea

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<v Speaker 4>of how much of your own intellectual property do you

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<v Speaker 4>want to export to other nations. That is a serious

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<v Speaker 4>concern that has been a constant conversation among trade experts

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<v Speaker 4>now for months because at the core of this, this

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<v Speaker 4>AMD Nvidia revenue share is an export control license, right, Okay,

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<v Speaker 4>So to get your licenses you will give us a

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<v Speaker 4>fifteen percent cut.

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<v Speaker 1>Is that legal?

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<v Speaker 4>That's a major question. The House Select Committee on China's

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<v Speaker 4>chairman sent us a statement in which he questioned the

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<v Speaker 4>legality of doing this. I have heard other trade experts

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<v Speaker 4>who said there is a way around this, which is

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<v Speaker 4>you don't write into the actual export licenses that a

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<v Speaker 4>cut is going to the United States federal government. It

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

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<v Speaker 4>But it feels like talking to a number of trade

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<v Speaker 4>experts and to a couple lawyers, it feels like you

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<v Speaker 4>can find a way around that. And ultimately a lot

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<v Speaker 4>of people keep saying, hey, it's up to Congress, like

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<v Speaker 4>if they actually do have a problem with this, they

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<v Speaker 4>have the ability to step in.

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<v Speaker 1>How do you see this as part of Trump's recent

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<v Speaker 1>record of interfering with the way companies are doing business

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<v Speaker 1>or at least putting his thumb on the scale in

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<v Speaker 1>these kinds of business transactions.

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<v Speaker 4>So we have this chips situation. We have of these

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<v Speaker 4>country level trade deals like the EU and Japan are

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<v Speaker 4>really good examples where there was like a quasi fund

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<v Speaker 4>attached to the back of it, slightly different, not a

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<v Speaker 4>revenue generation, but like the US Steel Nippon Steel deal

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<v Speaker 4>that kind of captured a lot of attention, an old

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<v Speaker 4>steelmaker being popped by a Japanese company. Nippon Steel, agreed

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<v Speaker 4>in the deal to happen to give Donald Trump a

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<v Speaker 4>golden share hymn, specifically in which the President of United

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<v Speaker 4>States would be able to make direct decisions in corporate matters.

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<v Speaker 1>After the break the competing arguments over national security, why

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<v Speaker 1>US companies agreed to the President's deal to begin with,

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<v Speaker 1>and the ripple effect it could have on other industries

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

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<v Speaker 1>Bloomberg Economic state Craft reporter Joe do about the Trump

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<v Speaker 1>administrations deal with US chip companies to allow some sales

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<v Speaker 1>of their technology to China for a price. The original

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<v Speaker 1>argument for expert controls on chips to China was that

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<v Speaker 1>there were national security concerns and competition concerns. Right, have

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<v Speaker 1>those concerns gone away or is it just that other

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<v Speaker 1>motivations are outweighing them.

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<v Speaker 4>They haven't gone away, and I think at play here

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<v Speaker 4>are different theories. So the CEO of Nvidia has kind

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<v Speaker 4>of argued, well, we need access to the Chinese market.

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<v Speaker 4>We should be a player there on a competitive level

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<v Speaker 4>and prove that we are number one. You know that

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<v Speaker 4>our chips are more in demand than what the Chinese

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<v Speaker 4>semiconductor industry can produce, and let us just go toe

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<v Speaker 4>to toe with them.

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<v Speaker 1>In an interview with Bloomberg TV in May, and Nvidia's

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<v Speaker 1>CEO Jensen Huang argued that allowing Nvidia to sell chips

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<v Speaker 1>in China would help deepen country's reliance on US tech

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<v Speaker 1>and prevent Chinese competitors from getting ahead.

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<v Speaker 4>Without American technology.

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<v Speaker 3>The availability of Chinese technology will fill the market and.

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<v Speaker 4>On some level, like from purely capital market standpoint, that

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<v Speaker 4>makes sense. But you know that's where politics and Wall

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<v Speaker 4>Street can never really separate themselves, and the national security

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<v Speaker 4>experts have a different point of view, which is like, well,

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<v Speaker 4>it's a little more nuanced than that.

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<v Speaker 3>Right.

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<v Speaker 4>That ignores the fact that sometimes other actors may not

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<v Speaker 4>have capital market interests at heart, right, they may have

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<v Speaker 4>their own ulterior motives. This is a great example of

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<v Speaker 4>seeing the profit maximizers but heads with the people always

0:13:47.559 --> 0:13:50.520
<v Speaker 4>considering the worst case scenario.

0:13:51.240 --> 0:13:53.880
<v Speaker 1>What about how China has responded to this deal. Are

0:13:53.920 --> 0:13:58.120
<v Speaker 1>they eager to start buying AGE twenty chips from Nvidia again?

0:13:58.200 --> 0:13:58.720
<v Speaker 1>For example?

0:13:59.080 --> 0:14:02.440
<v Speaker 4>I mean, we had some really nice reporting from some

0:14:02.480 --> 0:14:06.720
<v Speaker 4>of our colleagues who reported actually, right now, Chinese officials

0:14:06.720 --> 0:14:10.360
<v Speaker 4>are saying to not buy these chips, and it was

0:14:10.400 --> 0:14:13.320
<v Speaker 4>a question that our reporters on Bloomberg Television put in

0:14:13.320 --> 0:14:17.320
<v Speaker 4>front of Treasury Secretary Bestent. Hey, yeah, if you can't

0:14:17.360 --> 0:14:19.720
<v Speaker 4>sell into the Chinese market, then what does any of

0:14:19.800 --> 0:14:20.960
<v Speaker 4>that matter?

0:14:21.400 --> 0:14:25.080
<v Speaker 1>And I mean for Nvidia, obviously it seems like they

0:14:25.120 --> 0:14:27.880
<v Speaker 1>want to continue to be able to sell their products

0:14:27.960 --> 0:14:31.360
<v Speaker 1>to as many people as possible. But why did they

0:14:31.440 --> 0:14:34.680
<v Speaker 1>agree to pay the federal government fifteen percent of their revenue?

0:14:34.720 --> 0:14:38.000
<v Speaker 1>Is that surprising to you? Is there any information about

0:14:38.040 --> 0:14:38.800
<v Speaker 1>their thought process?

0:14:38.800 --> 0:14:39.000
<v Speaker 3>There?

0:14:39.240 --> 0:14:41.960
<v Speaker 4>Absolutely If any company is still going out there saying

0:14:42.360 --> 0:14:44.720
<v Speaker 4>we're willing to give an x cut of our revenue

0:14:44.840 --> 0:14:48.960
<v Speaker 4>generated from sales in the open market to the federal

0:14:49.000 --> 0:14:52.280
<v Speaker 4>government in the United States like that, regardless of the company,

0:14:52.280 --> 0:14:56.400
<v Speaker 4>that to me is shocking. Why did they do it?

0:14:56.480 --> 0:14:59.440
<v Speaker 4>I mean, you know, I think you'd have to leave

0:14:59.440 --> 0:15:03.640
<v Speaker 4>it up to them. But the experts in the space say, listen,

0:15:03.840 --> 0:15:05.760
<v Speaker 4>if you're a company and you have a big market

0:15:05.800 --> 0:15:10.280
<v Speaker 4>in China and you have a president who is constantly

0:15:10.280 --> 0:15:13.680
<v Speaker 4>focused on decoupling from China and cutting China out of

0:15:13.720 --> 0:15:17.080
<v Speaker 4>your markets, that could be problematic.

0:15:19.240 --> 0:15:22.040
<v Speaker 1>And Video does have a big market in China. In

0:15:22.080 --> 0:15:24.080
<v Speaker 1>the first quarter of this year, it said it made

0:15:24.080 --> 0:15:27.160
<v Speaker 1>four point six billion dollars in revenue from Age twenty

0:15:27.200 --> 0:15:30.000
<v Speaker 1>chips alone. The company said it could have made two

0:15:30.080 --> 0:15:33.480
<v Speaker 1>point five billion dollars more in revenue if export controls

0:15:33.480 --> 0:15:36.280
<v Speaker 1>hadn't been imposed at the end of April, and Joe

0:15:36.280 --> 0:15:39.320
<v Speaker 1>says that could explain in Video's calculus.

0:15:39.320 --> 0:15:45.480
<v Speaker 4>Here are you willing to save that revenue stream by

0:15:45.520 --> 0:15:51.080
<v Speaker 4>giving concessions that would otherwise be just considered insane or

0:15:51.320 --> 0:15:55.760
<v Speaker 4>or just have no precedent, maybe because eighty five percent

0:15:55.800 --> 0:15:59.080
<v Speaker 4>still better than zero percent in the minds of these companies.

0:15:58.760 --> 0:16:02.960
<v Speaker 1>Right, it goes against everything that we think is true

0:16:03.000 --> 0:16:05.920
<v Speaker 1>about trade and about business interests in some ways.

0:16:06.000 --> 0:16:09.120
<v Speaker 4>Yeah, because I mean we've all taken like an ECO

0:16:09.320 --> 0:16:11.440
<v Speaker 4>one oh one course in our lives, whether it's like

0:16:11.680 --> 0:16:14.600
<v Speaker 4>in college or in high school, you probably took some

0:16:14.640 --> 0:16:20.360
<v Speaker 4>sort of economics study like this is not in the textbook, Joe, I.

0:16:20.320 --> 0:16:23.840
<v Speaker 1>Want to end by looking closer at those potential ripple effects.

0:16:24.000 --> 0:16:27.200
<v Speaker 1>Treasury Secretary Scott Bessant was on Bloomberg TV this week

0:16:27.560 --> 0:16:30.120
<v Speaker 1>and he said he thought this model could be used

0:16:30.240 --> 0:16:32.280
<v Speaker 1>in other industries over time.

0:16:32.800 --> 0:16:35.280
<v Speaker 4>Is it unique to Nvidia an empty or is this

0:16:35.360 --> 0:16:36.880
<v Speaker 4>a motto for other companies.

0:16:37.240 --> 0:16:40.320
<v Speaker 3>I think we could see it in other industries over time.

0:16:40.400 --> 0:16:44.120
<v Speaker 3>I think, you know, right now this is unique, But

0:16:44.840 --> 0:16:47.600
<v Speaker 3>now that we have the model and the beta test,

0:16:47.960 --> 0:16:48.920
<v Speaker 3>why not expand it?

0:16:49.760 --> 0:16:52.760
<v Speaker 1>What kinds of industries do you think the administration might

0:16:52.800 --> 0:16:55.680
<v Speaker 1>try to replicate this approach with and what are the implications.

0:16:56.000 --> 0:16:58.800
<v Speaker 4>I have already heard at least one source saying that

0:16:58.840 --> 0:17:00.960
<v Speaker 4>they had had a client reach out to them asking

0:17:01.000 --> 0:17:04.359
<v Speaker 4>it if they should be concerned about a fee or

0:17:04.359 --> 0:17:06.960
<v Speaker 4>a pay to play. And I don't want to get

0:17:06.960 --> 0:17:09.040
<v Speaker 4>into what the market was, but it was definitely not

0:17:09.080 --> 0:17:11.760
<v Speaker 4>in the chips space, and it definitely wasn't even in

0:17:11.800 --> 0:17:14.159
<v Speaker 4>a space that like most people would think about on

0:17:14.160 --> 0:17:17.399
<v Speaker 4>a daily basis. But if somebody in a rather niche

0:17:17.400 --> 0:17:22.359
<v Speaker 4>market is asking that question, I mean, that's like, wow,

0:17:22.560 --> 0:17:24.560
<v Speaker 4>you know, that's kind of wild to me. I had

0:17:24.600 --> 0:17:28.040
<v Speaker 4>to source say to me, you know, the slippery slope

0:17:28.160 --> 0:17:33.040
<v Speaker 4>is the question for anybody you know on the trade space. Right,

0:17:33.119 --> 0:17:35.920
<v Speaker 4>So in a commerce, do you suddenly have a situation

0:17:35.960 --> 0:17:40.399
<v Speaker 4>where companies that are trying to get meetings with trade

0:17:40.400 --> 0:17:43.359
<v Speaker 4>agencies within the United States government, do they have to

0:17:43.400 --> 0:17:46.680
<v Speaker 4>pay a fee to get those meetings to have those conversations.

0:17:47.200 --> 0:17:50.680
<v Speaker 4>Is there a question about defense contracts? Do you suddenly

0:17:51.520 --> 0:17:55.240
<v Speaker 4>have to worry about the bidding process where there's going

0:17:55.280 --> 0:17:57.320
<v Speaker 4>to be an ask on behalf of the federal government

0:17:57.359 --> 0:17:59.960
<v Speaker 4>that to get a contract you have to give something

0:18:00.320 --> 0:18:03.119
<v Speaker 4>in return for that. These are all hypotheticals, right, This

0:18:03.240 --> 0:18:04.840
<v Speaker 4>is not happening. I want to be clear about that.

0:18:04.880 --> 0:18:08.720
<v Speaker 4>But like, those are the questions that come to mind,

0:18:08.920 --> 0:18:12.800
<v Speaker 4>and I think that you're going to see companies begin

0:18:12.960 --> 0:18:16.919
<v Speaker 4>to try to figure out themselves as the days move forward.

0:18:22.000 --> 0:18:24.879
<v Speaker 1>This is the Big Take from Bloomberg News. I'm Sarah Holder.

0:18:25.200 --> 0:18:27.800
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0:18:27.840 --> 0:18:31.600
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0:18:31.640 --> 0:18:35.400
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0:18:35.520 --> 0:18:37.800
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0:18:37.880 --> 0:18:40.600
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0:18:41.280 --> 0:18:44.640
<v Speaker 1>Thanks for listening. We'll be back tomorrow