New limits on U.S. chip exports that shook up markets around the world on Wednesday are the clearest sign yet from the Trump White House that China will have to make any AI progress without American assistance.
For months, Trump administration officials have hinted at a potential ban on the export of processors from American firms like Nvidia, which have substantially aided China’s artificial intelligence advancements. This week saw the most recent reckoning, with U.S. officials taking action to halt the importation of billions of dollars’ worth of artificial intelligence chips from Advanced Micro Devices and Nvidia.
The action, which was prompted in part by the unexpected success of the Chinese AI startup DeepSeek in creating powerful models with less processing power, ended Nvidia’s ability to modify its chips to get around U.S. sales restrictions. Even while the modifications only have a little impact on the companies’ operations, they dash any prospects of future chip sales to China going forward without any obstacles.
Both AMD and Nvidia’s stock fell over 7% on Wednesday. Following the announcement that there would be no prolonged relief from the highest “reciprocal tariffs” imposed on China, the whole stock market fell.
The new restrictions, which apply to AMD’s MI308 and Nvidia’s H20 processors, ended a two-week-long frenzy that caused severe market turbulence and demonstrated the Trump administration’s resolve to deal with China in a number of ways. Similar to the trade war, the struggle for technological supremacy is expected to be characterized by harshness and a little confusion.
Following his imposition of a 145% duty last week, Trump exempted processors, smartphones, and other devices from the charge a few days later. The federal government informed Nvidia on April 9 that it would be subject to new export regulations.
In keeping with the president’s goal of relocating semiconductor manufacturing to the United States, Nvidia announced the following Monday that it would construct AI supercomputers in Texas. The business revealed the new limitations the following day.
“Even if you believe you’re following the rules and making some sacrifices for the team, the rules could change tomorrow and you’ll be hit again,” said Scott Lincicome, vice president of general economics and trade policy at the libertarian think tank Cato Institute. “For people who wish to invest billions of dollars in a project that will take 30 years to complete, it’s a harsh environment.”
Inference, which enables AI models to be used in real-world situations, has been perceived by Trump administration officials as the driving force behind recent advancements in AI. People with knowledge of the situation indicated that Nvidia’s H20 had worked well in that task.
According to the persons, U.S. officials, including those from the National Security Council, met with Jensen Huang, the CEO of Nvidia, in recent weeks to inquire about the H20 and the company’s global supply networks.
Another issue that will influence the future of the business is the administration’s May deadline for deciding how to handle the global sales of sophisticated AI chips. In the meantime, as part of its tariff strategy, it is looking into national-security risks in the industry and other tech items which contain semiconductors.
“Cease utilizing our tools.”
Nvidia has publicly said that selling to China generates income that the company utilizes to maintain its leadership position in AI worldwide. It has privately resisted any such limitations, claiming that China can already make some chips that are similar to its H20, according to people with knowledge of the matter.
Analysts estimate that Nvidia sold nearly $12 billion worth of H20s in the fiscal year that ended in January, which accounted for roughly 70% of the company’s revenue in China.
Since the last administration, U.S. policymakers have been keeping an eye on China’s access to Nvidia’s H20s. According to The Wall Street Journal, officials who understood the importance of H20s in AI development had secretly debated how to handle chip sales.
These discussions persisted under the Trump administration and gained impetus earlier this year when the Chinese AI startup DeepSeek shocked Wall Street and Silicon Valley with their inexpensive yet potent models. DeepSeek’s rise has increased China’s use of AI models, which has increased demand for Nvidia’s H20 and other CPUs.
The development of DeepSeek’s model was fueled by Nvidia chips, according to Commerce Secretary Howard Lutnick, who stated during his nomination hearing in January that such American support had to stop.
“If they’re going to compete with us, let them compete, but stop using our tools to compete with us,” he said. “I’m going to be very strong on that.”
A congressional committee that focuses on China released a fresh report on DeepSeek on Wednesday, recommending strengthening export controls and increasing money for the Commerce Department division that is in charge of them.
Changing suppliers
Chinese consumers hurried to buy because they thought a ban would be imposed shortly. According to persons familiar with the transactions, Nvidia got orders totaling over $18 billion for servers and modules equipped with the H20 in the first three months of this year. This amount of orders exceeded Nvidia’s total income from China during the previous fiscal year. According to the report, Chinese cloud computing firms Alibaba, Tencent, and ByteDance were the largest purchasers.
The decision would cut off a significant source of computer power utilized by Chinese businesses and research institutes, and it would raise demand for local alternatives if the United States doesn’t make any exceptions.
According to a report released on Wednesday by Citigroup analysts, Chinese cloud-service providers are now expected to use Huawei and Cambricon AI chips instead of the H20 processors that they had initially intended to use to source 50% of the demand for AI accelerators in 2025.
Beijing has promoted the use of indigenous alternatives and pushed for the growth of its own semiconductor industry separate from American technology.
Nvidia reported that the new restriction would cost them about $5.5 billion in its first fiscal quarter, which ended in April. AMD stated that it anticipated up to $800 million in charges. ASML’s stock dropped after the manufacturer of tools used in semiconductor manufacturing revealed poor quarterly orders and claimed that tariffs were increasing uncertainties.
