Recent/upcoming developments… President Trump on Monday said he would allow Nvidia to sell its advanced H200 chips to China and that the U.S. will collect 25% of the revenues of those sales.  AMD and Intel are expected to receive similar treatment.  Separately, the White House successfully lobbied to remove the GAIN AI Act from the annual defense policy bill (NDAA).  The GAIN AI Act would have required U.S. chipmakers to offer advanced AI chips to U.S. buyers before fulfilling overseas orders.

* Trump reportedly decided to allow H200 sales after declaring that Chinese company Huawei already offers AI systems with similar performance.  White House officials also believe that Chinese firms may turn to the H200 instead of Huawei products, which would reduce Huawei’s revenue and ability to fund R&D.  So far, Chinese firms Alibaba and ByteDance are reportedly interested in buying H200 chips.

* The GAIN AI Act was included in the Senate’s version of the NDAA but not the House’s NDAA.  Ultimately, the GAIN AI Act was stripped from the NDAA when the House and Senate merged their respective versions of the bill.  White House AI Czar David Sacks lobbied Congress to remove the provision, as did Nvidia.  Meanwhile, MAGA influencers like Steve Bannon supported the GAIN AI Act, arguing that restricting U.S. tech from China is the best way to outpace China in the tech race.  Other China hawks like Trump’s former Deputy National Security Adviser Matt Pottinger and Oren Cass, a national conservative who leads the American Compass think tank, called for the bill to be enacted.

Our outlook… Trump to date has prevailed over Congressional China hawks on the export control debate by allowing the sales to China of advanced U.S. chips, but mounting pressure from Republican hawks on Capitol Hill could constrain Trump on export controls going forward.  It is unlikely Congress will pass legislation imposing on Trump restrictive export controls next year, but we expect the pressure from Congress to increase, which could moderate his position on the issue.  Looking further into the future, if Democrats taking control of one or both chambers of Congress in the midterm elections, they would have an opportunity to materially constrain Trump on export controls as Democratic Congressional leaders could bring export controls bills up for votes, which would likely earn Republican support.

* White House AI Czar Sacks believes that by fostering China’s dependence on U.S. chips, it will deny Huawei revenue and therefore their ability to invest in innovation.  Still, there is some evidence that China hawks have convinced Trump against allowing full Chinese access to the U.S. market, as some tech doves have advocated.  For example, earlier this year Secretary of State Rubio (a China hawk going back to his days in the Senate) and Commerce Secretary Lutnick successfully lobbied Trump against allowing China to access Nvidia’s most advanced Blackwell chip.

* To date, the dynamics surrounding the GAIN AI Act is the best manifestation of friction between the Trump White House and China hawks.  While White House lobbying prevailed,  it was notable that the Senate included the provision in its NDAA over open objections from the White House.  This signals that a similar effort could be made next year in the NDAA and a more modest version of the bill could gain traction given the widespread and bipartisan support for restricting Chinese access to advanced U.S. chips.

* Throughout his second term, Democrats have been critical of the Trump administration’s export control policy vis-a-vis China.  In November Sens. Schumer (D-NY),  Wyden (D-OR), Warren (D-MA), Cortez Masto (D-NV), Kim (D-NJ) Ray Lujan (D-NM), Merkley (D-OR) and Van Hollen (D-MD) criticized Trump’s decision to ease export controls on Chinese subsidiaries to secure a trade truce, arguing that the policy will allow Chinese firms to acquire the most advanced U.S. tech.  Trump reversed a Commerce Department rule that would add to its entity list (blacklist) any subsidiaries that are at least 50% owned by a company already on the entity list, which would have affected firms like Huawei. In the House, Rep. McCaul (R-TX) has said he would introduce legislation that would codify the initial rule.

*  Over the last year, bipartisan lawmakers have introduced a slew of hawkish export control bills at odds with the Trump administration’s export control policies.  Earlier this month, Sens. Ricketts (R-NE) and Coons (D-DE), along with two Democratic and two Republican co-sponsors introduced the SAFE Chips Act, which would require the U.S. to deny exports of advanced chips to adversary nations for 30 months.  In November, Sens, Coons (D-DE) and Cotton (R-AR) introduced a resolution affirming the importance of preserving and maintaining the U.S. advantage in AI. That resolution was co-sponsored by Sens. Klobuchar (D-MN), McCormick (R-PA), Wicker (R-MS), and Shaheen (D-NH) and commends U.S. government efforts to deny Chinese access to advanced U.S. chips.  That resolution was introduced shortly after Nvidia CEO Huang stated that China would “win the AI race.”  In April, Sen. Rounds (R-SD) and Sen. Warner (D-VA) introduced the Stop Stealing our Chips Act, which would incentivize whistleblowers to report illegal chip exports.

* Sen. Cotton in October wrote to Commerce Secretary Lutnick urging him to work with industry participants to test anti-diversion technology in chips, which would allow the U.S. to track chips to ensure they haven’t been smuggled into third countries.  Cotton earlier in the year introduced the Chip Security Act, which would mandate location verification for all exports of advanced U.S. chips.  Rep. Moolenaar (R-MI) introduced matching legislation in the House.

Watch for these developments… If we experience another “DeepSeek” moment in which China appears to leapfrog U.S. AI advancements, concern from China hawks would become even more visible and cause the Trump administration to throttle the flow of advanced chips to China.