Nvidia, the leading chip manufacturer, has found itself at the heart of growing tensions between the US and China over trade and technology. On Thursday, Nvidia CEO Jensen Huang traveled to Beijing to meet with Chinese officials, shortly after the US imposed new export controls on its chips. These new regulations require Nvidia to obtain licenses to export its H20 AI chip to China. The US Commerce Department stated this measure is necessary to protect "national and economic security," and Nvidia was informed that the restrictions will be enforced indefinitely.

Why is Nvidia crucial in the AI race between the US and China?: Nvidia designs cutting-edge chips used in generative artificial intelligence (AI), which can produce content based on user input, like ChatGPT. As demand for AI chips has surged, Nvidia has become one of the world’s most valuable companies. In November, it briefly overtook Apple as the largest company by market capitalization.

Given the importance of Nvidia’s chips to advancements in generative AI, the US has closely monitored Nvidia's dealings with China. Washington hopes the export controls will slow China’s progress in developing advanced AI chips, particularly for military use, and ensure the US maintains an edge in AI competition.

Why is the US targeting Nvidia’s H20 chips?: The US has previously imposed restrictions on Nvidia's chip sales to China. In 2022, the Biden administration introduced export controls on high-performance semiconductors, which led Nvidia to design the H20 chip to meet these limits. A more powerful chip, the H100, was already banned for sale to China.

However, the rise of DeepSeek, a Chinese generative AI company, has raised concerns that even less powerful chips could result in significant technological advancements. DeepSeek claims its AI operates as effectively as ChatGPT with lower-tier chips. As a result, Chinese tech giants like Tencent, Alibaba, and ByteDance have placed significant orders for Nvidia's H20 chips. Due to the new export curbs, Nvidia anticipates losing $5.5bn from these unfulfilled orders.

Chim Lee, a senior analyst at the Economist Intelligence Unit in Beijing, noted that while Chinese companies like Huawei are developing alternative AI chips, they are still considered inferior to Nvidia's. He suggested that the US restrictions may encourage China to focus on improving its own chip development, though it won't drastically hinder China's AI progress.

Why did Nvidia’s CEO visit China?: China is an important market for Nvidia, accounting for 13% of its total sales last year, though the US still represents a larger share at nearly 50%. Huang's visit is seen as an effort to strengthen Nvidia’s business in China despite the new restrictions. During his meeting with Ren Hongbin, head of the China Council for the Promotion of International Trade, Huang expressed a desire to "continue to cooperate with China." Reports also indicated Huang met with DeepSeek's founder, Liang Wenfeng. Top Chinese official He Lifeng also spoke with Huang, highlighting China’s significant market potential.

How will the export controls affect US-China competition?: The export controls align with the US's broader strategy to reduce reliance on China for advanced technology and to bring more semiconductor production back to the US. Nvidia recently announced plans to build AI servers worth up to $500bn in the US, a move reportedly influenced by President Trump’s re-election campaign.

In March, Taiwan’s TSMC, which manufactures Nvidia’s chips, revealed plans to invest $100bn in new manufacturing facilities in Arizona. Gary Ng, a senior economist at Natixis, noted that these developments show global technology is increasingly divided into two systems: one led by the US and the other by China. He believes this will lead to a more fragmented tech landscape with stricter restrictions.

Disclaimer: This image is taken from BBC.