Recent/upcoming developments… Senate China hawks want to include export control legislation in its annual defense bill (NDAA) that would give U.S. companies the right of first refusal on advanced AI chip orders before foreign countries like China could place orders for the same semiconductors.  A similar effort failed in the House earlier this month as the tech industry has lobbied against the proposal.  The White House, which is seeking a trade framework agreement with China, has also criticized efforts to reduce U.S. chip sales, but has not yet specifically attacked the proposal.  The Senate is seeking to pass its version of NDAA this week but has acknowledged that an NDAA vote could slip until October.

* Sen. Banks’ (R-IN) GAIN AI Act requires U.S. chipmakers to offer advanced AI chips to U.S. buyers before fulfilling overseas orders.  If there is no “current backlog,” those chipmakers can fulfill foreign orders.  Banks, on MAGA Influencer Steve Bannon’s podcast, said “There’s nothing more ‘America First’ than making sure that our chips don’t go to our enemies to use against us.” Banks has said that he is open to conversations that would make his amendment “stronger.”

* White House AI Czar Sacks reached out to Banks earlier this month regarding the GAIN AI Act.  Sacks has been a leading proponent of ensuring the White House maintains maximum discretion on AI chips export controls, saying that if the U.S. does not sell its chips abroad, China will fill the gap.  Sacks was influential in directing the White House’s AI Action Plan, which calls for the U.S. to aggressively enforce export controls, but not to expand them.

* Nvidia said the amendment is seeking to “solve a problem that does not exist.”  The Semiconductor Industry Association (SIA) said the Banks bill would “irreparably harm global demand for U.S. chips.”  The Information Technology Industry Council (ITI) said the bill would make the White House’s “goal of promoting U.S. leadership in the AI stack more challenging.” Nvidia, Oracle, OpenAI and AMD are among ITI’s members.  The Information Technology and Innovation Foundation– which is supported by Nvidia and TSMC – said the bill is at odds with the Trump White House’s approach to AI.

*House Committee on Competition with China Chair Moolenaar (R-OH) offered an amendment similar to Banks’ in the House’s NDAA earlier this month, but it was not included in the House-passed NDAA.  Moolenaar has long been an advocate of cutting off China from advanced U.S. tech and was dismayed by the Trump administration’s decision to allow Nvidia to sell its H20 AI chip to China, which directly contradicts policy recommendations from the House Select Committee on Competition with China.

* President Trump and Chinese President Xi plan to speak over the phone on Friday to discuss various trade irritants, including the fate of TikTok’s U.S. operations.  The Trump administration has paused tariff increases on Chinese goods until November to give the countries time to negotiate a trade framework deal.  An early concession by the U.S. to China was to allow Nvidia to sell China advanced chips in exchange for China selling the U.S. rare earths.

Our outlook… President Trump appears to be accommodating China’s desire to import U.S. tech in an effort to reach a bilateral economic deal, to the chagrin of congressional China hawks.  The GAIN AI Act is the strongest export control proposal to gain legislative traction in Trump’s second term but is unlikely (35%) to be enacted this year as Congress will likely be deferential to Trump on foreign affairs, Sacks/the White House will remain vocal opponents of new export controls, and industry’s influential lobbying will likely continue.  The fact that the House rejected a similar amendment from Moolenaar, for example, indicates that resistance from the White House and industry has been effective.  That pushback also suggests that Banks’ proposal is commercially meaningful.  We are assuming the GAIN Act will remain in the Senate version of the NDAA, though its probability of enactment will marginally rise once NDAA passes in the Senate with it included.  The House will still have an opportunity to water it down when the House and Senate merge their legislation.  It is also possible that the Banks amendment could get dropped when the House and Senate negotiate final bill text.  If the Senate does not pass its NDAA this week due to time constraints, the GAIN AI Act’s chances of enactment will sink as the delay will give industry more time to lobby against the bill.  In the interim, we also expect increased contact between U.S. and Chinese officials on a trade framework agreement.  As the U.S. and China get closer to a deal, we expect the White House to tamp down any activity that it can influence that might negatively affect the negotiations.

Watch for these developments… We are looking for supportive comments about the GAIN Act or the need for more controls on tech exports to China more generally from Congressional Republicans as this would suggest it has growing momentum going into Senate/House negotiations over NDAA.  Any negative comments from White House officials on the GAIN AI Act would decrease its likelihood of enactment.  If Trump is overly accommodating to China in a future trade framework agreement, risk to industry could rise as we would expect congressional China hawks to intensify their efforts to strengthen export controls through legislation.