In April, the Trump Administration banned sales to China of Nvidia’s H20 semiconductor chips and AMD’s MI308 chips. Although not the most sophisticated, the chips were advanced enough to raise national security concerns about exporting them to China. Lawmakers and security experts in Washington have expressed fear over China harnessing US AI capabilities to give their military a major boost. Both sides of the aisle have long sought to limit Beijing’s technological capabilities. The administration’s recent decision to reverse course may not only be bad for the economy and national defense but also poor for the administration’s own priorities. The decision raises questions about the current administration’s legality, ethics, and approach to the betterment of the US.
Both sides of the deal were careful not to describe the agreement as what it is: a tax on exports. This is because -- as Article I of the Constitution explicitly states -- an export tax is outright illegal. Despite the agreement seeming voluntary, Nvidia and AMD would not be able to get export licenses without agreeing to the payments, making the revenue collection an essentially mandatory tax on their exports.
Export taxes are usually used by developing countries to increase revenue and safeguard crucial industries. But even then, there are clear drawbacks.
To start, some of Trump’s campaign goals, which include boosting domestic manufacturing, building global dominance in AI, and generating extra revenue to fill the fiscal hole created by 2025’s enormous budget bill, would not benefit from the measure. The tax would limit sales of US goods overseas and will “likely generate much less revenue than Trump may hope,” as both buyers and firms find ways to circumvent the tax. One Wall Street research firm estimates a total of about $2 billion in new revenue -- microscopic in comparison to the $4.1 trillion gap needed to fill the annual deficit.
Moreover, the tax will raise the price of US-made chips sold in China, making them less competitive than others. This may also supercharge Chinese efforts for autonomy in chipmaking and AI capabilities by promoting domestic research and development.
Export taxes on semiconductor chips will also be difficult to collect. While it may work more easily on larger goods, chips are extremely small and easy to transport across borders undetected. Chip smuggling is already a serious issue, and Chinese enterprises have been finding ways to deal with export controls for some time now. A recent report from the Center for Strategic and International Studies indicated that Huawei utilized shell companies to acquire over 2 million AI chip dies manufactured by TSMC. This issue may only be exacerbated with Trump’s levies.
Finally, one of the most concerning issues about the tax is the decision to even issue it in the first place. The rare nature of such a levy creates potential for corruption in the government if used more frequently going forward. If the government can stick its hand into the affairs of specific products and producers through these types of export taxes, then there is nothing stopping large firms with political influence from lobbying the administration to gain unfair advantages and exceptions in the future. In the end, this tax will likely become a serious pitfall for the best interests of the US.
National Security & US Dominance
A group of security experts, including some who served during Trump’s first term, wrote to the administration recently “expressing ‘deep concern’ that Nvidia’s H20 chip was a ‘potent accelerator’ of China’s AI capabilities.” This risk was recognized by the Biden administration, who passed The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022.
The CHIPS Act was targeted at revitalizing the US semiconductor industry amidst increased geopolitical tensions, supply chain issues, and the pandemic. By increasing semiconductor manufacturing, research, and development in the US, the Act was aimed at reversing the globalization of the industry and moving it back to America.
This was the Biden administration’s approach to safeguarding future economic and national security concerns -- ones that are now more relevant than ever.
The Act included $52 billion in appropriations for semiconductor incentives, $170 billion for research and development initiatives over 5-years across multiple federal agencies, and investment tax credits for semiconductor manufacturing facilities in the US. Moreover, the Act limited the expansion of manufacturing in China.
Strategically, the Act was meant to impair Chinese capabilities in AI by cutting off access to state-of-the-art chips and prevent China from designing its own high-end devices and equipment. Later, the Trump administration imposed its own, additional export restrictions on chips. The immediate consequence in both cases was a significant short-term disruption of China’s semiconductor ecosystem, forcing reductions in labor and spikes in prices. However, these restrictions also prompted Chinese government-backed efforts to prioritize self-sufficiency in all facets of semiconductor design and production.
There are already many factors pointing towards a successful Chinese jump to semiconductor and AI autonomy. For instance, ChangXin Memory Technologies has made major investments in RAM production -- an industry that is nearly completely monopolized by South Korean and US producers. The research arm of Chinese giant Alibaba Group also recently unveiled the C930 CPU, which is a viable alternative to similar Western competitor products.
Most significant for the future is China’s current rate of research and development. Currently, China is “producing twice as many research papers as the US on chip design and production.” Current export controls -- from Trump’s levy to provisions in the CHIPS Act -- will only be relevant as long as the US and its allies possess technologies that China needs. The more self-sufficient they become, the less they will need to rely on US-made products.
Last year, China’s DeepSeek, a small tech-startup, jumped into the spotlight after creating an AI model that had similar performance to peers like Google’s Gemini and OpenAI’s GPT but at a significantly lower cost. In March, 2025, Chinese researchers from Peking University announced they had found a way to use new material to outperform current silicon-based chips. By using a new material, they evaded obstacles silicon presented and made a “2D-transistor that operates 40% faster than TSMC’s 3-nanometer devices while consuming 10% less energy.” At the same time, another team developed the world’s first carbon nanotube-based chip, capable of outperforming silicon in “speed, efficiency, and scalability.”
Future Outlook
Advancements like these are cause for concern in Washington, and the export tax certainly won’t help ease them. To maintain a competitive advantage in the semiconductor and AI industry without compromising American values and ideals, quick and effective measures investing in domestic R&D and manufacturers will be necessary.
The agreement the Trump administration struck with Nvidia and AMD will not only generate a relatively small amount of revenue but also fail to protect national security interests while making US chipmakers less competitive in global markets. The effects of the tax will reverberate for years to come. US leadership on the international stage will suffer, and questions over legality, ethics, and corruption will rise. The decision shows that in today’s America, everything comes at a price -- even our collective security, values, and ideals.