July 2025 was a busy month for NVIDIA as the tale of a chip spun up. First it was legal to sell a certain chip to Red China. Then it was illegal. Then it was legal again.
And what a chip! The Associated Press called it NVIDIA’s “advanced H20 chip.” NPR called it “the most cutting-edge AI chip U.S. companies can legally sell to China.” But a closer look reveals it to be a downgrade of the more powerful original.
The H20 has been intentionally degraded and otherwise reengineered to conform to America’s technology export restrictions. The new H20 is “a less powerful version” of itself. It offers a “substantial reduction in memory.” NVIDIA dumbed down the chip to produce a version for communist China, thus creating its own Brand X to compete with its own quality original.
Wait a minute
Now, if you were a communist interested in maximizing computing power, would you want to buy inferior-quality H20s? Here’s a rundown on NVIDIA chips.
● H200. The newest flagship with massive memory.
● H100. The computing monster that everyone talks about.
● H20. The efficiency champion that nobody talks about.
● L20. The budget-conscious workhorse.
H20 sales numbers posted before the ban tell a strange story. Red China was hoarding $16 billion worth of a chip that they were allowed to buy in 2024. When the ban went into effect, they started smuggling in a much better chip. The question then is whether they will return in force to the inferior chip once the ban is lifted, will continue smuggling the better chip—or will do both. In any case, the 2024 sales show that the H20 is worth billions to NVIDIA, which explains Huang’s determination to lift the restriction.
Sales of the H20 also paint a picture of a voracious appetite for something that Beijing probably shouldn’t have.
Anyway, you can design a product with federal regulations in mind, but doing so won’t save you from “shifting regulations” down the road, which in this case brought on the ban on H20s.
Oddly enough, this prohibition prompted the Financial Times (and outlets recapping the FT story) to assert that “Trump’s H20 export ban triggered a billion-dollar black market for NVIDIA B200 chips.”
Wait a minute: when Red China can’t get H20s any more, the baddies start to smuggle B200 chips instead of H20s or even H100s? If “for many buyers, the performance gap between H20 and B200 makes the latter worth the risk,” then there is no competition between H20s and B200s. Which means that lifting the ban on H20s will not stop chip smuggling.
The stories suggest that the decision to lift the ban came out of a discussion. The Wall Street Journal reports that “Jensen Huang’s case proves persuasive as U.S. agrees to grant licenses for H20 chip.” Huang is the Taiwan-born NVIDIA CEO. We read of a meeting in which the mogul convinced the U.S. president to do right by H20.
But had this been a “Trump ban” or fallout from those shifting regulations?
A couple of details
Interesting detail number one: in July, the two met over a million-dollar-per-plate dinner at Mar-a-Lago. That seems to have been the venue for this talk.
Interesting detail number two: back in April, we learned from the White House that “for the first time ever, chipmaking giant NVIDIA will manufacture its AI supercomputers entirely in the U.S., the company announced today—part of its pledge to produce $500 billion of AI infrastructure in the U.S. over the next four years.”
So Jensen Huang’s case proves persuasive indeed.
Perhaps the million spent on dinner caused the cup of $500 billion in NVIDIA promises to overflow into the saucer of export approval. But how is NVIDIA going to earn back $500 billion by selling H20 chips to communists who prefer the B200? It will take 31 years of $16 billion sales. Do we have an illustration here of the sunk-cost fallacy? This is shaping up to be an MBA case study.
And how does President Trump direct the workings of his bureaucracy to break or bend the shifting regulations?
Well, it harkens back to “The Arms Export Control Act of 1976…, [which] gives the president of the United States the authority to control the import and export of defense articles and defense services.”
By the way, if you have ever wondered how a president can legally strip the United States of air defenses to supply Ukraine and Israel, for instance, the Act also amends the Foreign Assistance Act of 1961 “to permit the President to order defense articles from the stocks of the Department of Defense for military assistance to a foreign country on a reimbursable basis upon certification to Congress that certain emergency conditions exist.”
This law needs a rethink.
Worst-case scenario
So if you lift restrictions on powerful AI-enabling chips, even second-class chips, what’s the worst that can happen?
“AI is used to improve lethality on battlefields, usually through automated targeting using biometric analysis databases, which can then be developed into surveillance databases.” And “lethal autonomous weapons represent AI’s ultimate and most ethically challenging application in a combat role.”
This sounds terrible; that is, it sounds like a powerful argument for controls. If ever we have to confront Beijing’s killer robots, auto-drones, smart bombs, etc., remember that a military export regime may not count for much when political considerations come into play. □
James Roth works for a major defense contractor in Virginia.
