US Cut of Chip Export Revenue to China Raises Legal Questions, Former Officials Say

Under the deal, Nvidia and AMD will both pay the government 15% of the total revenue from exporting certain chips to China, according to a U.S. official who requested anonymity. The deal is expected to apply to Nvidia’s H20 chips and AMD’s MI308 chips.

Officials at the Bureau of Industry and Security, the agency responsible for licensing those chip exports to China, were caught off-guard by the announcement. Some career employees, including lawyers, learned of the arrangement through media reports, one BIS official said.

Thea Kendler, who served as the assistant secretary for export administration during the Biden administration, said she was “speechless” when she heard about the deal. “As far as I'm aware, this has never been done before,” she said in an interview, “and it indicates a sort of quid pro quo that doesn't belong in national security."

The announcement came about a month after the Trump administration said it would be approving exports of Nvidia’s previously restricted H20 chips to China as part of a deal reached earlier this year between Washington and Beijing, a rare instance of the U.S. including national security-related trade restrictions as part of trade talks (see 2507150013).

Trump, speaking to reporters on Aug. 11, said he reached the revenue-sharing deal while meeting recently with Nvidia CEO Jensen Huang. Huang asked Trump to allow the company to sell its H20s to China, and Trump said: "If I'm going to do that, I want you to pay us as a country something, because I'm giving you a release” from the export restrictions.

At first Trump asked Huang to pay 20% of Nvidia's H20 export revenues to the U.S. government, but Trump said the two eventually agreed to 15%.

“We negotiated a little deal,” he said during a press conference.

He added that the H20 is an “obsolete” chip that China already has in a “different form, a different name,” so he said Nvidia should be able to sell it. Although the deal applies only to the H20, Trump said administration officials plan to soon speak with Nvidia about export restrictions over its more sophisticated Blackwell chip, which Trump called “super duper advanced.” He said the U.S. may be willing to allow Nvidia to export a diminished version of its Blackwell chip to China.

“Now, on the Blackwell, I think [Huang] is coming to see me again about that,” Trump said. “But that will be an unenhanced version of the big one.”

An Nvidia spokesperson said the company wants to be able to sell its H20 chips around the world, including in China.

“We follow rules the U.S. government sets for our participation in worldwide markets. While we haven't shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide,” the spokesperson said Aug. 11 in an emailed statement. “America cannot repeat 5G and lose telecommunication leadership. America’s AI tech stack can be the world’s standard if we race."

An AMD spokesperson didn't respond to a request for comment.

At least two U.S. lawmakers objected to the announcement. House Select Committee on China Chairman John Moolenaar, R-Mich., said he’s “concerned” about the deal and has “questions” about its legal basis.

“Export controls are a frontline defense in protecting our national security, and we should not set a precedent that incentivizes the government to grant licenses to sell China technology that will enhance its AI capabilities,” Moolenaar said in an emailed statement.

Rep. Raja Krishnamoorthi, D-Ill., the committee’s ranking member, criticized the deal as “a dangerous misuse of export controls.” He said that if sales of advanced chips to China pose national security risks, they should be prohibited, not used to make money for the government. “By putting a price on our security concerns, we signal to China and our allies that American national security principles are negotiable for the right fee,” he said.

Krishnamoorthi urged the Trump administration to answer several questions about the arrangement, including “what legal authority it has for extracting revenue-sharing as a condition for export licenses.”

In interviews, several former export control and national security officials also questioned the legality of the arrangement, and one BIS official noted that the deal isn’t spelled out as a condition of the licenses granted to the chip firms.

Multiple former officials pointed to language in the Export Control Reform Act, which says the U.S. can’t charge for the “submission, processing, or consideration of any application for a license.”

"ECRA says no fee may be charged in connection with a license,” said Kendler, now a lawyer with Mayer Brown. “The legal authority for this action is murky, even if these are side deals outside the licensing process.”

Jeannette Chu, vice president of national security policy for the National Foreign Trade Council and a former senior BIS policy adviser, said she’s seeking more clarity about the arrangement, including whether it's "part of the export licensing process that was set in motion" by the chip-related is-informed letters the U.S. sent to Nvidia and AMD earlier this year (see 2504160026). She also wondered whether the deal is meant to build on the White House’s AI Action Plan, which calls for boosting exports of AI-related technologies (see 2507240019).

She said it’s unclear how the usual interagency export licensing review process will apply to these exports.

“How is the administration safeguarding that licenses will be adjudicated as they always have been -- objectively, on the basis of facts and merit?” Chu said.

Several former officials and industry lawyers, who requested anonymity to speak candidly, said they expect the arrangement to raise alarms among exporters. They questioned whether similar deals could be struck for licenses involving restricted end uses or end users, such as those on the Entity List.

Kendler said the announced deal "suggests the possibility of a process that may not be equitable for all companies.”

Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade negotiator, said on LinkedIn that it “appears that export control licenses are now up for sale,” and the deal “opens the door for similar arrangements with other companies for a price.”

Peter Harrell, a former National Security Council official during the Biden administration, said the arrangement “creates perverse budgetary incentives for US agencies to issue licenses that undermine national security because they want the cash.”

Although the Constitution forbids taxes on exports, Harrell said he doesn’t expect Nvidia and AMD to challenge the deal in court because they “agreed” to it. But he said he expects “other exporters will eventually sue” if “export fees become institutionalized.”

Geoffrey Gertz, a senior fellow with the Energy, Economics and Security Program at the Center for a New American Security, also said the issue could result in a legal challenge. “There's a very good chance all of this gets struck down in the courts” because it’s unclear “what legal authority [the administration] is attempting to use here,” he wrote on LinkedIn.

The Commerce Department and BIS didn’t respond to requests for comment. The Chinese Foreign Affairs Ministry, asked about the deal during an Aug. 11 press conference, said: “China has made its position clear more than once on the U.S. export of chips to China.”