The U.S. government has brokered an unprecedented deal that lets Nvidia and AMD resume sales of specific AI accelerators to China — but only after the companies agree to hand over a 15% share of revenues from those Chinese sales to the U.S. government as a condition of newly issued export licenses. The arrangement, announced in mid‑August, applies to Nvidia’s H20 and AMD’s MI308 accelerators and has immediately ignited debate across boardrooms, courtrooms and Capitol Hill about legality, national security, market strategy and long‑term industrial policy. (cnbc.com, ft.com)
Since 2022, the U.S. has used export controls to limit China’s access to advanced AI accelerators — a key element of the national‑security toolkit intended to slow Beijing’s progress in high‑performance AI compute. Nvidia and AMD designed versions of their data‑center GPUs specifically to meet earlier, tighter U.S. restrictions: Nvidia’s H20 (a modified Hopper‑generation HGX module) and AMD’s MI308 (an Instinct accelerator tuned for export compliance). Those products were widely sold to Chinese cloud and AI labs until export licensing requirements were tightened in April 2025, triggering large inventory write‑downs and a pause in shipments while manufacturers sought licensing clarity. (cnbc.com)
In August 2025 the White House signaled a policy shift: the Commerce Department began issuing licenses for targeted shipments, but only after Nvidia and AMD agreed to remit 15% of sales proceeds from those licensed China shipments to the U.S. government. The President framed the arrangement as a pragmatic balance between preserving commercial access to a critical market and retaining controls over cutting‑edge capabilities; critics call it a dangerous precedent — a form of pay‑to‑export that may clash with U.S. law and longstanding export‑control practice. (washingtonpost.com, cnbc.com)
Source: TechTarget Trump fee for Nvidia, AMD China exports could face legal battle | TechTarget
Background / Overview
Since 2022, the U.S. has used export controls to limit China’s access to advanced AI accelerators — a key element of the national‑security toolkit intended to slow Beijing’s progress in high‑performance AI compute. Nvidia and AMD designed versions of their data‑center GPUs specifically to meet earlier, tighter U.S. restrictions: Nvidia’s H20 (a modified Hopper‑generation HGX module) and AMD’s MI308 (an Instinct accelerator tuned for export compliance). Those products were widely sold to Chinese cloud and AI labs until export licensing requirements were tightened in April 2025, triggering large inventory write‑downs and a pause in shipments while manufacturers sought licensing clarity. (cnbc.com)In August 2025 the White House signaled a policy shift: the Commerce Department began issuing licenses for targeted shipments, but only after Nvidia and AMD agreed to remit 15% of sales proceeds from those licensed China shipments to the U.S. government. The President framed the arrangement as a pragmatic balance between preserving commercial access to a critical market and retaining controls over cutting‑edge capabilities; critics call it a dangerous precedent — a form of pay‑to‑export that may clash with U.S. law and longstanding export‑control practice. (washingtonpost.com, cnbc.com)
What the agreement actually covers
The products in scope
- Nvidia H20: a Hopper‑generation, export‑compliant module designed for Chinese buyers who could not receive Nvidia’s highest‑end H100/H200/Blackwell processors under previous rules. The H20 was already the subject of export licensing scrutiny and sizable inventory buildups when rules tightened in April. (tomshardware.com)
- AMD MI308: AMD’s Instinct family accelerator intended for large‑scale AI training and inference that likewise ran into April licensing constraints and inventory issues. AMD has said license applications for MI308 were under review and that sales were materially affected by the restrictions. (ir.amd.com, cnbc.com)
The mechanics — what “15%” means
According to reporting by multiple outlets, the 15% requirement is a negotiated condition attached to the special export licenses that allow shipments of the affected models into China. It is described as a share of revenues from the eligible sales, not a per‑unit tariff or an across‑the‑board export tax. The federal government would therefore receive ongoing receipts tied directly to the companies’ China sales of licensed SKUs. Reporting to date describes the payment as a condition of license issuance rather than a statutory tax imposed via Congress. (ft.com, cnbc.com)Financial fallout for the chipmakers
The immediate damage: inventory charges and lost sales
When Washington required export licenses for H20 and MI308 products earlier in 2025, both companies disclosed significant charges and revenue hits tied to unsellable inventory and unfulfilled orders.- Nvidia disclosed large first‑quarter charges tied to the H20 program. Public reporting has shown inventory and related charges cited at figures ranging from about $4.5 billion to $5.5 billion in various filings and press coverage; the variance reflects reporting of different items (inventory write‑downs vs. combined inventory and contract reserves) and company guidance nuance. Nvidia acknowledged that H20 sales represented a material slice of what otherwise would have been China revenue. (cnbc.com)
- AMD warned of a smaller but still material hit related to MI308: the company disclosed potential charges up to roughly $800 million and guidance that China export constraints could cost ~$1.5 billion in revenue for the year. AMD’s published earnings commentary and 10‑Q filings made this effect explicit. (cnbc.com, ir.amd.com)
How much revenue does China represent?
Estimates vary a little by reporting source and fiscal periods, but Nvidia’s China sales were widely reported in 2025 at roughly $17 billion (low‑to‑mid‑teens percentage of total company revenue), and AMD’s China exposure is frequently measured in the single‑digit billions (around $6 billion and roughly a quarter of AMD’s revenue, depending on the reporting window). Those underlying revenue baselines are the arithmetic that produces multi‑billion‑dollar government receipts from a 15% sharing arrangement. (cnbc.com, san.com)Legal and constitutional questions
Is this an export tax?
The U.S. Constitution expressly forbids export taxes. Several legal scholars and former officials immediately raised concerns that a required revenue share tied to export licensing could functionally approximate an export tax or even an impermissible penalty absent Congressional authorization. That constitutional question — whether a negotiated license condition equates to an impermissible export levy — is not academic: it is central to the legal challenges already being mooted by observers and lawmakers. (washingtonpost.com, wsj.com)Administrative law and export‑control statutes
Export licensing and export‑control policy rest on statutory authority (notably the Export Control Reform Act and Commerce Department regulations). Traditionally those systems are used to deny or permit sales for national‑security reasons; using them as vehicles to extract revenue raises novel administrative‑law issues:- Could Commerce lawfully condition license issuance on a non‑statutory payment? Critics argue that doing so could exceed statutory authority and might be reviewable as arbitrary or capricious agency action.
- Would the payment be characterized as a fee, fine, tax, or quid pro quo? The legal label matters because fees and fines follow different rules than constitutionally prohibited export taxes. (washingtonpost.com, ft.com)
Likely forms of legal challenge
Several plausible plaintiffs could litigate: civil‑liberty groups, state attorneys general, Congressional committees, or the companies themselves (if one party later sought to limit the arrangement or to clarify liability). Litigation could argue constitutional overreach, violations of the Administrative Procedure Act, or statutory misapplication. The fast track for preliminary injunctive relief is uncertain — courts typically defer to national‑security judgments, but the constitutional issue is a high‑stakes exception that tribunals may be compelled to address. (washingtonpost.com, politico.com)National‑security and policy implications
The paradox of containment via commerce
Export controls aim to deny or slow technology transfer. This revenue‑sharing deal performs the opposite tack: it allows controlled access while creating a financial return to the U.S. The logic defenders advance is transactional: by permitting older or deliberately downgraded models to flow under license, the U.S. can preserve influence over the AI ecosystem, keep developers tied to American toolchains (CUDA, software stacks), and claim leverage over Beijing. Critics counter that such a deal erodes the deterrent credibility of export controls and may accelerate China’s learning curve by feeding it hardware — even if intentionally less capable. (ft.com, reuters.com)Short‑term industry incentives
For Nvidia and AMD, the arithmetic is straightforward: better to sell into China at a reduced take than to forfeit multibillion‑dollar revenue entirely. Analysts pointed out that, because GPUs used in hyperscale AI workloads carry very high margins and demand is intense, vendors can likely absorb or pass through some of the 15% charge while preserving overall profitability — especially relative to the one‑time inventory losses already booked. Wall Street generally reacted positively in the immediate aftermath because the alternative for those firms would be near‑term revenue blackouts in a key market. (wsj.com, cnbc.com)Long‑term risk: Chinese substitution and a tightening market dynamic
Allowing U.S. chips back into China now risks accelerating domestic Chinese alternatives, because:- Short‑term access reduces the urgency for some local firms to invest in indigenous accelerators.
- But continued flows also give Chinese AI teams time and data to tune software against U.S. hardware, potentially shortening the time for local chip‑software co‑design to catch up.
- Beijing has already been consolidating national efforts (Huawei, Cambricon, and others), and state guidance discouraging government entities from buying U.S. accelerators has been reported after the licensing deal became public — a politically useful lever for China to favor domestic suppliers. (reuters.com, elpais.com)
Market winners and losers
Short list of winners
- Nvidia and AMD: both firms can resume a major revenue stream and avoid even larger long‑term share losses; inelastic Chinese demand for AI compute gives them pricing power. Many analysts judge the deal net positive for the vendors’ near‑term earnings, despite the revenue share. (cnbc.com, wsj.com)
- U.S. Treasury (on paper): a new, if modest, stream of receipts tied to exports — estimates vary but aggregate receipts could reach multiple billions annually if volumes recover. (san.com)
Likely losers and exposed parties
- U.S. national‑security hawks: the deal reduces the bluntness of export controls and may limit the government’s ability to keep advanced capabilities out of adversarial hands.
- Smaller chipmakers or software vendors: if pay‑to‑export becomes normal, smaller vendors may face unpredictability or gatekeeping absent the bargaining power of Nvidia/AMD. This could raise systemic fairness and competition concerns. (washingtonpost.com, ft.com)
Political and diplomatic fallout
- Congress: Expect hearings. Both Republicans and Democrats have flagged constitutional and security concerns; subpoenas, oversight inquiries and rapid bipartisan questioning of the Commerce Department and Treasury are likely within weeks. (washingtonpost.com)
- China: Beijing’s immediate reaction included pressure on state‑affiliated enterprises to avoid U.S. chips in sensitive projects and public questioning of potential backdoors or security risks — a familiar narrative in the bilateral technology contest. That PR posture both preserves leverage and signals that China may escalate its own industrial policy response. (elpais.com, reuters.com)
- Allies: The U.S. traditionally coordinated export controls with allies; an unorthodox revenue‑sharing approach risks confusing partners that have agreed in principle to slow the diffusion of strategic semiconductors. Multilateral coordination may fray if partners perceive the U.S. as monetizing controls rather than enforcing them. (ft.com)
Legal battlefield: how a court challenge might play out
- Immediate motions and venue: plaintiffs (private litigants, states or industry groups) could seek emergency relief in federal court, pointing to the constitutional export tax bar or to overreach under the Administrative Procedure Act. Courts will test whether the payment is genuinely a tax or an ancillary license condition.
- Interim remedies: the government could defend by arguing that license conditions are an intrinsic tool for tailoring national‑security risk and that courts should defer to executive determinations. Success for either side depends on granular administrative record evidence and legal framing. (washingtonpost.com)
- Constitutional test: if plaintiffs survive threshold defenses, the Supreme Court could ultimately be asked to determine whether tying revenue extraction to an executive‑branch licensing decision violates export‑related constitutional restrictions. That is a high‑stakes constitutional drama that could reset the outer bounds of export policy. (ft.com)
Technical realities that matter
- Chip downgrading and functional limits: The H20 and MI308 are not the state‑of‑the‑art Blackwell‑class boxes. The U.S. government and vendors emphasize that only limited models are eligible, and companies have described technical adjustments (reduced interconnect bandwidth, memory caps and firmware restrictions) that make the chips less useful for the most demanding military or HPC workloads. The effectiveness of those downgrades as a security control is disputed. (tomshardware.com)
- Software ecosystem lock‑in (CUDA & ROCm): Nvidia retains a powerful software ecosystem advantage. Even downgraded hardware invites software compatibility and developer familiarity advantages that can be strategically valuable; this increases the long‑term competitive moat for American stacks. (reuters.com)
Critical analysis — strengths, weaknesses and likely outcomes
Strengths of the policy (from a realpolitik standpoint)
- Recovers large market access and near‑term revenues for U.S. firms that were left with stranded inventory.
- Converts a national‑security lever into a revenue and leverage channel that can be used for domestic R&D, enforcement or offsetting industrial pain.
- Keeps China tied to U.S. software and ecosystem dominance, potentially slowing wholesale migration to local stacks in the very near term. (wsj.com, cnbc.com)
Weaknesses and significant risks
- Constitutional and statutory exposure: the arrangement flirts with the export‑tax prohibition and could be struck down or enjoined by courts. (washingtonpost.com)
- Credibility of export controls: monetizing licenses undermines the deterrent value of export denials and risks making export policy transactional rather than strategic. That may embolden rivals to accept incremental gains in capability while accelerating indigenous development. (ft.com)
- Diplomatic and alliance erosion: allies who coordinated export measures may balk at a unilateral monetization approach, complicating future multilateral export control efforts. (ft.com)
- Market signalling to China: Beijing can use the deal politically to justify accelerated domestic substitution, or to impose countermoves limiting U.S. vendor access to government or state‑backed projects. Evidence of such moves surfaced in Chinese state guidance almost immediately after the deal was publicized. (elpais.com)
Most plausible near‑term outcomes
- Short‑term revenue recovery: Nvidia and AMD will partially recover China sales, mitigating prior inventory charges. Analysts expect meaningful, though not full, restoration of China revenue. (cnbc.com, wsj.com)
- Legal tests and political theatre: hearings, oversight and at least one test lawsuit seem likely — the issue is too constitutionally charged to remain a backstage executive action. (washingtonpost.com)
- Strategic recalibration: over the medium term, expect a hybrid approach: preserved license pathways for downgraded boxes, stepped‑up enforcement against illicit diversions, and renewed investments in domestic manufacturing and stricter multilateral rules that try to square the fiscal and security equations. (ft.com, reuters.com)
What industry and policymakers must watch now
- Agency rulemaking and administrative records: the Commerce Department’s licensing memoranda and the Treasury’s accounting of where payments flow will determine much of the legal terrain.
- Congressional oversight: expect bipartisan hearings and possible incremental legislation to either prohibit or formalize revenue‑sharing as a legal option.
- China’s procurement guidance: shifts from Beijing about whether state projects may use U.S. chips will materially affect volumes and the economics of the deal.
- Enforcement: the U.S. must invest in verification and anti‑diversion measures if license conditions are to be credible; mere financial payments cannot substitute for technical export safeguards. (washingtonpost.com, reuters.com)
Conclusion
The 15% revenue share deal marks a dramatic deviation from prior export‑control practice: it turns national‑security licensing into a negotiated extractive instrument with near‑term fiscal upside but deep legal, diplomatic and strategic downsides. For Nvidia and AMD the calculus is pragmatic — recover sales and blunt inventory losses — but for U.S. policy the deal raises an agonizing tradeoff: monetize limited access to retain market influence, or hold the line on control and lose commercial leverage. The next chapters will be written in courtrooms, congressional hearing rooms and boardrooms in Santa Clara and Austin. The ultimate question is whether export policy will remain an instrument of strategic restraint or become a transactional tool of revenue and corporate diplomacy — and whether either path can be reconciled with long‑term national‑security priorities and constitutional guardrails. (ft.com, washingtonpost.com)Source: TechTarget Trump fee for Nvidia, AMD China exports could face legal battle | TechTarget