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After making a show of getting tough on China, President Donald Trump desperately needs a trade agreement to prove that his disruptive tactics get results. This week, the United States and China agreed to extend their negotiations, avoiding—for now—another round of tariffs that would have hurt business between the world’s two largest economies. But the president’s newfound willingness to allow the export of vital AI chips to China indicates that an eventual deal could imperil American interests. Eager for a pact, Trump may give up more than he receives.
In 2022, then-President Joe Biden prohibited the export of advanced AI chips to China. Just four months ago, Trump expanded those restrictions. This week, though, Trump confirmed the details of an unusual arrangement effectively reversing that move: The American companies Nvidia and Advanced Micro Devices will be allowed to sell certain chips to Chinese firms if the companies give the U.S. government a 15 percent cut of the revenue from these sales. In essence, Trump sold exemptions to technology-export controls that many experts consider crucial to protecting American security. In a letter last month, Matt Pottinger, who was Trump’s deputy national security adviser during the president’s first term, and 19 other policy professionals urged the administration not to allow the sale of Nvidia’s H20 chip to China, calling the decision a “strategic misstep that endangers the United States’ economic and military edge in artificial intelligence.”
[Derek Thompson: The disturbing rise of MAGA Maoism]
Trump may see the arrangement not as a national-security issue but as a business deal: There’s a lot of money to be made selling chips to China, and now the U.S. government will materially benefit. But Trump must also realize that he’s made a concession to Chinese President Xi Jinping. Beijing has persistently demanded that Washington remove U.S. export controls on advanced chips, and Xi personally pressed Biden for relief without success. Trump justified his flip-flop by arguing that the H20 chip is not among Nvidia’s most high-powered products. He’s right about that, but it’s far from outdated. Chinese companies crave the H20 to help them deploy AI services. Indeed, the demand for the H20 appears to have alarmed Chinese authorities, who would prefer that local companies use homemade alternatives. Even as Beijing fights the U.S. restrictions, officials have tried slowing the rush by signaling in state media that the Nvidia chip is unsafe. Although Chinese designers have developed a similar chip, they are unable to produce enough, also due to U.S. restrictions that prevent them from using the top chip manufacturer, Taiwan Semiconductor Manufacturing Company.
Trump has left the door open to further concessions. Because China’s tech industry still can’t match Nvidia’s AI chips, Beijing is likely to prod Trump to ease restrictions on more advanced semiconductors. Rather than firmly committing to export controls, Trump suggested on Monday that he would be open to permitting Nvidia to sell China downgraded versions of its most powerful chips.
Xi has every reason to ask for more. Trump’s desire for a deal gives Chinese leaders leverage. And given Trump’s pattern of sudden policy reversals, he has likely left an impression that anything could be on the table. Beijing is clearly all in on the negotiations. According to U.S. Treasury Secretary Scott Bessent, the Chinese government sent 75 officials to the most recent round of talks, in Stockholm in late July, compared with his own skeleton crew of 15.
“Xi now feels more emboldened to probe for a wider range of potential concessions, not only economic but also security concessions,” Ali Wyne, an expert on U.S.-China relations at the International Crisis Group, told me. Wyne fears this could lead to a “lopsided bargain” in China’s favor.
[Thomas Wright: Trump wasted no time derailing his own AI plan]
Xi has already gained on his top-priority issue: Taiwan. He urged Trump to approach Taiwan “with prudence” during a phone conversation in June, according to the Chinese government’s official summary. Washington then reportedly canceled meetings with Taiwan’s defense minister, a step that surely pleased Beijing, which strives to isolate the island’s government. The Trump administration also appears to have discouraged Taiwanese President Lai Ching-te from making stopovers in U.S. cities while en route to Latin America for diplomatic visits.
Xi has done little in exchange. Beijing’s most significant goodwill gesture was a June decision to restrict the sale of two chemicals that are used to make the illegal fentanyl circulating on American streets, an issue of utmost importance to the Trump team. But Beijing’s action on curtailing the fentanyl trade will likely remain conditional on Trump’s good behavior. Trump recently called on Xi in a social-media post to buy more U.S.-grown soybeans—which would be great for some American farmers, but is hardly an even swap for China’s access to high-tech chips. Meanwhile, Xi has deftly created and deployed levers of pressure. Amid the escalating trade war in April, Beijing imposed controls on the export to the U.S. of rare-earth metals—an industry that China dominates—and then used their easing as a negotiating tool.
In the end, Xi may not get all he wants. But he is winning just by talking. China’s leaders have apparently learned that they can distract Trump from more strategic issues by haggling with him over tariff rates and soybean sales. The desire for a deal has so consumed the Trump team that any grander strategy to contend with China’s growing power seems to have gotten lost. Last week, Trump imposed high tariffs on India in an attempt to compel New Delhi to curtail purchases of Russian oil—angering a potential partner in the global competition with China.
Friendlier relations with China are certainly better than open hostility. The question has always been: At what cost? Trump may eventually seal a trade deal with China that benefits him, but not necessarily the nation.
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