Why Nvidia’s H200 chips are unlikely to tempt China and the Europeans have leverage in Russia-Ukraine peace deal
Donald Trump has been planning to get his hands on some of the $370 billion of Russian funds frozen within Europe while also taking a multibillion-dollar slice of Nvidia’s potential revenue from sales of its more advanced chips to China. Neither ambition is tracking exactly as planned.
In the bilateral peace negotiations the US has been having with Russia, a key element for gaining American support for a plan that favours Russia’s interests over Ukraine’s is the establishment of two US-led joint venture investment vehicles with Russia, funded by most of the €210 billion ($370 billion) of Russian foreign exchange reserves held within Europe.
Earlier this month, Trump, after heavy lobbying by Nvidia’s Jensen Huang, said he would allow the company to sell its H200 chips – a generation behind its most advanced Blackwell chips – to China in exchange for a 25 per cent cut of the revenue from the sales.
On Friday, the European Union, which has been dithering and divided for two years over what to do with the Russian assets, most of which are held by the Belgium-based clearing house Euroclear, invoked emergency powers to pass legislation that freezes those assets indefinitely.
Previously, approval for the freeze had to be renewed every six months, which provided a half-yearly opportunity for pro-Russian countries – Viktor Orbán’s Hungary being the most obvious – to veto the renewal and any attempt to use the funds to provide aid to Ukraine.
The use of the emergency powers means a majority of the EU members can now extend the freeze, which will be reviewed annually.
While that would make it easier for the EU to use the frozen funds as collateral for a “reparations” loan to Ukraine, it also gives Europe a seat at the negotiating table for a peace deal using the fate of those funds as leverage.
The US and Russia now can’t dispose of those assets – Russia can’t use them to help buy Trump’s support for a deal on its terms – without EU approval.
Not surprisingly, Russia has immediately filed a lawsuit in Moscow seeking damages from Euroclear and has threatened to sue for damages in other jurisdictions and use all available legal and other mechanisms to protect its interests. It has also looked at seizing assets held by Euroclear and other Western interests – funds and businesses – within Russia.
The EU was aware of the likely Russian response when it decided to freeze the funds indefinitely.
Trump’s willingness to trade Ukraine’s sovereignty for cash has echoes within the Nvidia deal.
In 2022, the Biden administration, as part of its “small yard, high fence” strategy of limiting China’s access to strategic technology, banned sales of America’s most advanced semiconductors – critical to artificial intelligence technologies – to China. The decision was made on national security grounds.
Trump partly lifted the ban earlier this year, allowing Nvidia to sell a specially created custom chip to China, the H20, which was much less sophisticated than Nvidia’s most powerful chips.
China, however, didn’t buy the H20 chips and the Trump administration hasn’t collected any revenue from the 15 per cent share of sales of the chips to China that it negotiated with Nvidia.
Then, last week, Trump shocked the US security establishment by announcing that he would allow Nvidia to sell its H200 chips to China in return for 25 per cent of the revenue.
He was willing to trade Ukrainian land, including territory its forces hold, for a profit-sharing deal with Russia. He was prepared to set aside national security concerns for a revenue-sharing deal with Nvidia.
Nvidia had argued that, with China throwing its entire system behind development of chips that are competitive with Nvidia’s, including subsidies, cheap electricity and mandated procurement by government agencies, the best strategy for the US was to make China and other countries dependent on US technology and its Nvidia-centric hardware and software ecosystem.
In effect, Trump traded the prohibition of sales of a technology where the US has a material competitive advantage over China to its main technological, economic and geopolitical rival for dollars.
It’s not clear that he has the power to do that.
The administration doesn’t have the authority to levy export taxes, which is why it appears it is trying to construct a work-around, with the chips being made in Taiwan, shipped to the US, subjected to a 25 per cent tariff as if they were imports and then, ostensibly after a security review, shipped to China.
China, however, while it has advocated for access to the latest US chips, isn’t exactly swooning at the opportunity Trump has presented.
As happened earlier this year in relation to the H20 chips, it would seem China may ban, or at least limit access for its companies, to the H200.
That may be because of its own national security concerns – it has expressed fears that US chips might come with embedded kill switches or (and Nvidia has been developing this) a location tracker – but it is more likely driven by the flip side of the US argument that making China more reliant on US technology would hinder the development of its homegrown chips.
China is pursuing self-sufficiency across its economy, including the tech sector. It wants its national champions like Huawei to continue to invest in the research and development that might close the gap with the US. It doesn’t want those R&D funds siphoned off by Nvidia and Trump.
China has used a less efficient approach to AI than the US, linking hundreds of processors to offset the lower performance of its chips and subsidising the energy required because the chips are less energy-efficient, to close some of that gap and, according to Bloomberg, is considering a new $US70 billion ($105.4 billion) package to support its domestic chipmakers.
It is almost inconceivable that China would allow its tech sector to become reliant on US chips or take their foot off the pedal in developing domestic alternatives, although it is possible it might selectively allow some purchases of the H200 to help fast-track the training of its AI models.
The H200 is about six times more powerful than the H20s Nvidia was previously allowed to sell to China, but the Blackwell chips are far more powerful again. Nvidia’s next-generation chip, the Rubin, will again raise the bar in terms of speed, memory and efficiency when it is released next year.
Thus, while the H200 would narrow the gap, thought to be about two years, between China’s tech and the bleeding-edge US chips, it is chasing a moving target.
It is unlikely that China will deviate from a strategy dedicated to self-sustenance and therefore the $US10 billion to $US15 billion of extra Nvidia sales that analysts think Nvidia might generate if China embraced the opportunity to buy H200s (and $US2.5 billion to $US3.75 billion of revenue for the US government) is unlikely to be realised. Nvidia isn’t including any revenue from sales of the chip to China in its own forecasts.
Trump is transactional and loves his reputation as a dealmaker. He was willing to trade Ukrainian land, including territory its forces hold, for a profit-sharing deal with Russia. He was prepared to set aside national security concerns for a revenue-sharing deal with Nvidia.
If the Europeans can hold their nerves, however, the Russian deal can’t be completed without their approval and, unless China were prepared to give up its ambition of becoming a self-developed artificial intelligence superpower, neither of those deals is likely to glean much revenue for either the US or those Trump and his delegates negotiated with.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email.