The 25% Deal: Trump Opens Nvidia H200 Sales to China

Key Takeaways

• The Policy Shift: President Trump moves from a “Total Blockade” to a “Tariff Access” model, allowing high-end chip sales to China for a 25% cut.
• The Hardware: Example H200 chips feature 141GB of HBM3e memory, essential for training the massive parameters of next-gen LLMs.
• The Revenue Model: The “25% Rule” applies not just to Nvidia, but also to AMD and Intel, effectively creating a sovereign tax on China’s AI development.
• The Market Reaction: A potential boon for US semi-cap stocks, but a long-term strategic gamble on whether money outweighs the risk of empowering a rival.

Introduction

In a stunning reversal of established bipartisan containment policy, President Trump has announced a new framework for the export of advanced semiconductors to China. The core of this doctrine? “Pay to Play.”

“I have informed President Xi, of China, that the United States will allow NVIDIA to ship its H200 products to approved customers in China,” Trump announced in a post on Truth Social. “President Xi responded positively! $25% will be paid to the United States of America.”

This decision, which the President claims is currently being finalized by the Department of Commerce, marks the end of the “Sullivan Doctrine”—the Biden-era strategy of maintaining roughly a two-generation lead over China in key technologies—and the beginning of what might be called “Mercantilist Containment.”

The logic is transactional, brutal, and distinctively Trumpian. He savaged the previous administration’s approach, stating it “forced our Great Companies to spend BILLIONS OF DOLLARS building ‘degraded’ products that nobody wanted, a terrible idea that slowed Innovation, and hurt the American Worker.”

But beneath the headline figures lies a critical nuance: The latest chips are safe. Trump explicitly clarified that “Nvidia’s U.S. Customers are already moving forward with their incredible, highly advanced Blackwell chips, and soon, Rubin, neither of which are part of this deal.”

So, why does China need the H200 so desperately that they might agree to this? What strategic risks is the US taking by unlocking its most powerful hardware? And will this 25% tax actually work?

The Hardware: Why the H200 is the “Golden Ticket”

To understand the leverage the US holds, one must understand the silicon itself. The Nvidia H200 is not just a “fast chip”—it is the specific key required to unlock the next generation of Large Language Models (LLMs) like GPT-5 or Claude 4.

The Memory Bottleneck

The primary constraint in modern AI training is not compute (FLOPS), but memory bandwidth and capacity.

• Capacity: Current LLMs have hundreds of billions of parameters. To run inference or fine-tune these models, the entire model must fit into GPU memory (VRAM).
• Bandwidth: The speed at which data moves from memory to the compute units determines how fast the chip can “think.”

The H200 is a monster in this regard. It was the first GPU to feature HBM3e (High-Bandwidth Memory 3e).

• Memory Capacity: 141GB (nearly double the 80GB of the H100).
• Memory Bandwidth: 4.8 Terabytes per second (TB/s).

The “Degraded” Product Trap

Trump’s critique of “degraded products” refers to chips like the Nvidia H20, which were specifically designed to slip under the performance thresholds set by the Biden administration.

• The H20 limit: To comply with previous sanctions, the H20 had its interconnect speed artificially slashed. This meant that while an individual chip was decent, you couldn’t string 10,000 of them together effectively to train a massive model.
• The Reality: Chinese companies bought them anyway, but grudgingly. By allowing the full-fat H200, Trump argues he is restoring American manufacturing prestige—why sell broken goods when you can sell the best for a premium?

The H200 changes this equation entirely. With 141GB of VRAM per card, a cluster of H200s can hold vastly larger models in active memory. For China’s AI giants, access to the H200 is the difference between staying competitive with OpenAI and falling permanently three years behind. That desperation is exactly what the Trump administration is banking on.

The “25% Rule”: Analysis of the Deal

The proposed “25% Revenue Share” is an unprecedented mechanism in modern trade. It is effectively a super-tariff, but one that goes beyond standard import duties.

How It Likely Works

Typically, tariffs are paid by the importer to the customs authority of the importing country. This proposal appears to be an Export Tax or a License Fee collected by the US government.

1. The Transaction: Baidu orders $1 Billion worth of H200 clusters from Nvidia.
2. The “Tax”: Nvidia (or the distributor) must remit $250 Million to the US Treasury.
3. The Price Hike: To maintain margins, Nvidia will likely pass this cost entirely to the Chinese buyer. This means Chinese companies will be paying a 33% markup (mathematically, to net 25% of the total, the price hike is significant) effectively “funding the US government” to build their own AI.

The “Same Approach” for AMD and Intel

The President explicitly mentioned AMD and Intel. This is critical because it prevents market fragmentation.

• AMD’s MI300X: This chip is a direct competitor to the H200, boasting 192GB of memory. Without this clause, China could simply switch to AMD to avoid the Nvidia “tax.”
• Intel’s Gaudi 3: While trailing in market share, Intel’s Gaudi 3 remains a potent accelerator for specific workloads.

By applying the rule across the board, the administration creates a cartel-like unified front. “You want American silicon? You pay the American sovereign surcharge.”

Historical Context: From “Small Yard, High Fence” to “Toll Road”

This shift represents a fundamental break from the containment strategy that has defined US-China tech relations since 2019.

The Biden Era: “Small Yard, High Fence”

National Security Advisor Jake Sullivan defined the previous era. The goal was to identify specific “force multiplier” technologies (Advanced AI, Quantum, Hypersonics) and place a “high fence” around them—an absolute embargo.

• Logic: Security is priceless. No amount of revenue is worth helping the PLA (People’s Liberation Army) build better targeting algorithms.

The Trump Era: “The Toll Road”

The new approach views technology leadership as a depreciating asset.

• Logic: China will eventually reproduce these chips (smuggling, Huawei’s Ascend series). If the tech is going to leak anyway, the US should extract maximum value while it has the monopoly.
• The “Rent-Seeking” Superpower: This turns the US innovation engine into a rent-seeking entity. It effectively uses Nvidia’s R&D dominance to subsidize the US budget (or perhaps the CHIPS Act funding).

The Huawei Factor

Why do this now? Reports suggest that Huawei’s Ascend 910C is facing yield issues, but is getting closer to parity with older Nvidia chips. By flooding the Chinese market with superior H200s (even at a premium prize), the US could severely undercut Huawei.

• The Trap: If Baidu can buy a real H200, why would they struggle with a buggy, hot-running Huawei chip? Access to H200s could addict Chinese software ecosystems back onto Nvidia’s CUDA platform, stalling the development of China’s domestic alternative (CANN).

Market Impact: Winners and Losers

Investments markets hate uncertainty, but they love revenue. The immediate reaction to this news is likely to be volatile but bullish for the semiconductor sector.

Nvidia (NVDA)

• Bull Case: The “China Gap” in revenue returns. Before bans, China was ~25% of Nvidia’s data center revenue. It dropped to single digits. This reopens a multi-billion dollar market. Even with the tax, demand is inelastic—China will pay.
• Bear Case: Reputational risk. If a Chinese H200 cluster is used to hack a US grid or guide a hypersonic missile, the backlash against Nvidia will be nuclear.

AMD and Intel

• AMD: The MI300 series becomes a viable export product again. AMD has been hungry for market share; this opens a massive door.
• Intel: Desperately needs revenue. The Gaudi 3 is a value play, and even with the tax, it might be the most affordable option for mid-tier Chinese clouds.

ASML and Equipment Makers

If China can buy chips, they have less urgency to buy equipment to make chips. This might actually be bearish for SME (Semiconductor Manufacturing Equipment) companies selling to China, as the “Manhattan Project” urgency for domestic fabs might cool slightly if the pressure valve is opened.

The Risks: What Could Go Wrong?

The “Hawk” argument against this deal is substantial, even with Trump’s assurance that “conditions that allow for continued strong National Security” will be in place.

1. Military Dual-Use: You cannot separate “Commercial AI” from “Military AI.” The same H200 cluster that optimizes TikTok recommendations can optimize drone swarm logistics or decrypt communications.
2. The Catch-Up Effect: By giving China the H200, we simply hand them the current state of the art. While we work on Blackwell (B200) and Rubin (R100), they get to build infrastructure that is “good enough” to threaten US dominance. Trump’s counter-argument is that “US customers are already moving forward” with these newer chips, keeping the US ahead.
3. Sanction Erosion: Once the door is cracked open, it is hard to shut. Verification of “civilian use only” has historically been impossible in China’s military-civil fusion economy.

Forward Outlook: The 4-Year Horizon

What happens next?

Year 1: The Gold Rush

We expect a massive surge in orders. Chinese companies have been hoarding cash and thirsting for compute. They will likely pay the 25% premium without blinking. Nvidia’s next earnings call could show a shock beat on revenue.

Year 2: The Verification Crisis

Inevitably, an investigative report will find H200s in a PLA lab or a surveillance center in Xinjiang. The administration will face pressure to “enforce the deal,” potentially leading to targeted suspensions.

Year 3: The Domestic pivot

Will Huawei survive this? If the flood of H200s kills the Ascend 910C’s market share, China remains dependent on the US. If Huawei survives and iterates, China might eventually tariff imports themselves to protect their champion.

Conclusion

President Trump’s “25% Deal” is a high-stakes gamble. It bets that American innovation is moving so fast that we can afford to sell “yesterday’s superweapon” (the H200) to our rival today, using the profits to fund the invention of tomorrow’s superweapon (Rubin/Blackwell).

It is a move from ideological containment to economic exploitation. For Nvidia, it is a windfall. For the US Treasury, it is a new revenue stream. But for the long-term security of the West, the question remains: Can you ever truly put a price tag on technological superiority?

The answer, apparently, is 25%.

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Sources:

• President Trump’s Official Statement on Truth Social
• Nvidia H200 Whitepaper & Architecture Overview
• US Department of Commerce: Bureau of Industry and Security Updates