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Tariffs to import and fees to export

An unprecedented new revenue share on chips sold to China reveals Donald Trump’s economics of control.

It might surprise people, but Donald Trump’s second term has been exceedingly friendly to China. He has repeatedly (and illegally) extended the deadline for Chinese divestment of TikTok, enabling surveillance collection without interference. He shut down Radio Free Asia, a soft-power tool established to counter Chinese propaganda since Tiananmen Square. He shockingly denied transit through the U.S. to Taiwan President Lai Ching-te, appearing to side with China in the long-standing tensions between those two countries.

Perhaps worst of all, last month Trump allowed Nvidia to sell H20 chips in China again, reversing a Biden-era export control after CEO Jensen Huang made a personal appeal. Eliminating export controls was a key ask from China in trade negotiations, and Trump was fine with giving it to them.

We’re now learning more about the deal, and it reveals Trump’s real interests, which have little to do with economic competition in the 21st century. Nvidia and another chipmaker, AMD, will pay the U.S. government 15 percent of their revenues from China chip sales directly, in what amounts to an export license fee. This is unprecedented in U.S. history; where tariffs make companies pay to import, now Trump is forcing payment to certain companies to export. (The Constitution explicitly bars export taxes, if that matters anymore.)

Fifteen percent of Nvidia H20 chips in China comes to something like $3.5 billion a year. But getting hooked on that revenue would almost certainly be counterproductive. The U.S. economy is all but relying on developing artificial intelligence that firms can export abroad. Selling chips used in AI data processing to China raises the likelihood that Chinese models will become more of the standard-setter, undercutting the giant bet that U.S. firms are making. Even if the models are produced with U.S.-designed chips, the models themselves are much more lucrative.

China hawks have raised the possibility that the Chinese military, the only thing close to an adversary of the U.S., will benefit from access to cutting-edge technology as well.

More broadly, Trump is accelerating the transformation of the U.S. economic system, from a form of capitalism that always socialized the risks for too-big-to-fail industries to a state-directed mercantilism for the purposes of flattering the head of state.

Trump likes having a “golden share” in U.S. Steel that can allow him to dictate factory shifts, but he also likes getting cash from sales of products to competitors abroad, or a stake in a critical minerals mining company. None of this necessarily makes jobs or economic growth the primary goal. It’s more of a haphazard form of cronyism than Nordic-style state involvement in the economy, or the industrial policy of the Biden years.

We see this in the chips industry in particular. Trump called for a 100 percent tariff on semiconductors, but it had its own exemption for chips from Apple, after CEO Tim Cook literally showed up at the White House with a hunk of gold, a scene that would have been thrown out of a movie about corruption for being too on the nose. Trump wants countries and companies flocking to Washington seeking exemptions from his trade tyranny, whether that benefits the country or his own wallet. Yet he’s also happy to bend to China’s demands to relax export controls on chips, if it gets him closer to a summit with Xi Jinping and a deal where the announcement is more important than the substance. (Technically, the deadline for a U.S.-China deal was tomorrow, but the two sides announced a 90-day extension.)

Taken as a whole, the Trumpian system of state-dominated economics is incoherent. It’s enough to make any company consider producing and selling to the 96 percent of the population living outside of America, leaving us as an island of backward technology and inadequate supply.

– DAVID DAYEN

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