In a recent move that surprised many analysts, President Trump allowed the resumption of exports of a particular AI chip that had been designed by an American firm for the Chinese market. The H2O chip had earlier on been included among the AI technologies that were restricted from being sold to firms in China. However, the resumption of these exports to China hasn’t triggered the response that the Western world expected.
Prior to the announcement that exports would resume, China had made these particular restrictions a key feature of their demands in talks with the U.S. over easing trade tensions between the two countries.
It was therefore expected that when exports resume, China would be thrilled. Their reaction was far from what was anticipated.
First, Beijing has referred to those particular AI chips as a national security risk and has sent warnings to domestic companies to refrain from using those chips. The country has gone as far as summoning Nvidia officials to explain specific concerns that the country has about the chips. China claims that these chips have an embedded system within them that can not only allow those with access the ability to know where the chips are, but they can also be remotely controlled.
Beijing has also shrugged off these particular chips as not being what they want. China says the chips are inferior to other models being made by the same company and they say that if restrictions were indeed eased, then China-based companies should be allowed access to the different chips they need, and not be restricted to a particular type that isn’t the best in class.
It should be noted that the H20 chip was developed in order to have a product that would adhere to the specifications limitations for tech exports to China. The U.S. set specific performance standards or limits that any chip exports to China and other countries deemed threats to the U.S. shouldn’t equal or surpass. The H2O chip was designed to adhere to those restrictions while also allowing its maker to keep serving the market in China.
China has made significant strides in growing its domestic semiconductor industry. Companies like Huawei now make AI chips that can compete globally, though they are still inferior to American chips in key parameters, such as high bandwidth memory. However, it is just a matter of time before China is self-sufficient in its technology needs.
It is unclear whether the country’s less than enthusiastic response to the easing of AI chip exports is simply political posturing or is a reflection of their confidence in having domestically made tech products that are sufficient to address their needs without heavily depending on American tech products.
What is clear now is that Nvidia Corp. (NASDAQ: NVDA), the maker of this particular AI chip, has been caught in the thick of the tensions between Beijing and Washington. China accounts for a significant share of the company’s market and revenue, so this situation could be very concerning for them.
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