In mid-April, the US Department of Commerce imposed new export restrictions on the NVIDIA H20 chip — a crucial component for AI . Essentially, this move halted deliveries of this chip to Chinese clients, a significant blow to the company. Following weeks of negotiations, which notably included multiple face-to-face discussions between Donald Trump and NVIDIA’s CEO Jensen Huang, an agreement was reached allowing NVIDIA to resume sales of its H20 chip in China.
However, this concession did not come without strings attached. NVIDIA is now required to pay the US government 15% of the revenue earned in China from this chip and other GPU sales. Remarkably, AMD has found itself in a similar predicament. The Trump administration’s strategy has set a distinct precedent, effectively mandating that certain US companies share a portion of their foreign earnings with the government. While both NVIDIA and AMD have accepted these terms, it remains uncertain if this arrangement will withstand scrutiny in the long run, as the export clause appears to favor them more.
Government’s Legal Concerns
It is surprising that the US administration has entered into this agreement with NVIDIA and AMD without thoroughly ensuring its legality. White House spokesperson Karoline Leavitt has expressed uncertainty regarding the agreement: “At this time this agreement remains with these two companies, but could expand in the future to other companies […] Legality and mechanics are still being resolved by the Department of Commerce.”
The US government does not rule out a commission similar to that it wants to receive from NVIDIA and AMD to other companies
As we just discussed, the US government is considering implementing a similar commission on revenues for other companies as well. However, the legality of this agreement with NVIDIA and AMD remains unresolved. It is important to note that Article I, Section 9 of the US Constitution states, “No tax or tariff will be imposed on articles exported from any state.” This export clause poses an obstacle to the proposed 15% commission on NVIDIA and AMD’s sales.
This article has significant implications. It can invalidate the proposed 15% fee for NVIDIA and AMD due to several reasons. Firstly, it can be classified as an export tax , which directly violates the constitutional clause. Additionally, the Export Control Reform Law of 2018 explicitly prohibits charging companies for export licenses. Finally, the measure is likely to be perceived as a tax enforced without Congressional approval, undermining any legitimacy it may hold.
Interestingly, both NVIDIA and AMD might lean on a historical precedent that could exempt them from paying the mandated commission. In 1998 , the US Supreme Court ruled against a port maintenance tax that the government attempted to implement, which sought to tax the value of goods passing through US ports, including exports. This scenario bears similarities to the current situation we are examining. The coming weeks will determine whether the Department of Commerce manages to solidify the legality of the proposed 15% commission on NVIDIA and AMD.
Image credits: Nvidia | Gage Skidmore
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In conclusion, the unfolding developments surrounding the NVIDIA and AMD agreement and its legal implications pave the way for significant conversations about the intersection of technology and legislation. As agencies evaluate the legality of the proposed commissions, many companies may be keeping a close eye on the future, which could lead to changes in how international trade and technological exports are regulated.