Trump loves a deal but these two are not going to plan

It is not surprising that Russia immediately filed a lawsuit in Moscow demanding compensation from Euroclear and threatened to file compensation claims in other jurisdictions and use all available legal and other mechanisms to protect its interests. It also examined the seizure of assets held by Euroclear and other Western interests (funds and businesses) in Russia.

The EU was aware of Russia’s possible reaction when it decided to freeze funds indefinitely.

Trump’s willingness to trade Ukraine’s sovereignty for cash is echoed in the Nvidia deal.

In 2022, the Biden administration banned sales of America’s most advanced semiconductors critical for artificial intelligence technologies to China as part of a “small garden, high fence” strategy to limit China’s access to strategic technology. The decision was made on national security grounds.

Trump partially lifted the ban earlier this year, allowing Nvidia to sell to China the H20, a custom-built chip that is much less complex than Nvidia’s most powerful chips.

But China did not purchase the H20 chips, and the Trump administration did not receive any revenue from the 15 percent share of the sale of the chips to China that it negotiated with Nvidia.

Then last week, Trump shocked the US security establishment by announcing that he would allow Nvidia to sell its H200 chips to China for 25 percent of the revenue.

He was ready to exchange Ukrainian territory, including territory held by his forces, in exchange for a profit-sharing agreement with Russia. He was willing to put aside national security concerns for a revenue-sharing deal with Nvidia.

Nvidia has argued that the best strategy for the US is to make China and other countries dependent on US technology and its Nvidia-centered hardware and software ecosystem, as China directs its entire system, including subsidies, cheap electricity and mandatory purchases by government agencies, towards the development of chips that can compete with Nvidia’s.

In effect, Trump transferred the ban on the sale of a technology in which the United States has a material competitive advantage over China to its main technological, economic and geopolitical rival in exchange for dollars.

It’s unclear whether he has the power to do this.

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The administration has no authority to impose export taxes, so it appears to be trying to find a solution by having the chips manufactured in Taiwan, shipped to the United States, subjected to a 25 percent tariff as if they were imports, and then shipped to China after an apparent safety inspection.

But although China defends access to the latest US chips, it is hardly fainting at the opportunity presented by Trump.

As was the case with the H20 chips earlier this year, it appears China may ban or at least limit its companies’ access to the H200.

This may be due to its own national security concerns – it has expressed fears that US chips could come with built-in kill switches or (and Nvidia is developing this) a location tracker – but it is likely driven by the other side of the US argument that making China more dependent on US technology will inhibit the development of its own domestic chips.

China aims for self-sufficiency across its economy, including its technology sector. It wants its national champions like Huawei to continue investing in research and development that can close the gap with the United States. He doesn’t want those R&D funds to be absorbed by Nvidia and Trump.

China has used a less efficient approach to artificial intelligence than the US to close some of that gap, by interconnecting hundreds of processors to compensate for the poor performance of its chips and subsidizing the energy required because the chips are less energy efficient, and is considering a new $70 billion ($105.4 billion) package to support domestic chip makers, according to Bloomberg.

It is almost unthinkable that China would allow its tech sector to become dependent on US chips or take its foot off the pedal while developing domestic alternatives; but it’s possible it will selectively allow some H200 purchases to help speed up training of AI models.

The H200 is about six times more powerful than the H20s Nvidia was previously allowed to sell to China, but the Blackwell chips are still much more powerful. Nvidia’s next-generation chip Rubin will once again raise the bar in terms of speed, memory and efficiency when it is released next year.

So the H200 is chasing a moving target as it narrows the gap, thought to be around two years, between China’s technology and cutting-edge US chips.

China is unlikely to deviate from a self-sustaining strategy, and so the $10 billion to $15 billion in extra Nvidia sales (and $2.5 billion to $3.75 billion in revenue for the U.S. government) that analysts think Nvidia could generate if China embraces the H200 acquisition opportunity is unlikely to materialize. Nvidia does not include revenue from sales of the chip to China in its estimates.

Trump is transactional and loves his reputation as a deal maker. It was ready to trade Ukrainian territory (including territory held by its own forces) in exchange for a profit-sharing agreement with Russia. He was willing to put aside national security concerns for a revenue-sharing deal with Nvidia.

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But if the Europeans can hold their nerve, the Russia deal cannot be completed without their approval, and unless China is ready to abandon its ambition to become a self-improving AI superpower, neither of these deals is likely to generate much revenue for either the United States or the countries Trump and his delegates are negotiating with.

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