Nvidia China Chip Sales Trigger Major Backlash in AI Trade

Key Points

• Nvidia China Chip Sales Trigger Major Backlash in AI Trade
• Rare-earth elements are driving policy shifts
• U.S. still shaping AI chip export regulations
• China to receive Nvidia’s “fourth-best” chip

Nvidia is back in the China game, but not without controversy. Just weeks after signaling an exit from China’s AI chip market, Nvidia is now preparing to resume sales of its H20 chip to Chinese customers.

The twist? This surprising shift appears tied directly to U.S.–China trade discussions involving rare-earth elements.

Rare-earth elements like lanthanum and cerium, used in everything from EV batteries to smartphones, are largely mined in China. These resources are critical to the global tech supply chain, and they’ve quickly become a strategic lever in U.S. trade negotiations.

Nvidia’s planned resumption of sales of its H20 AI chips to China is part of U.S. negotiations on rare earths, Commerce Secretary Howard Lutnick said on Tuesday. https://t.co/oclMFLhXoy

— The Japan Times (@japantimes) July 16, 2025

According to U.S. Commerce Secretary Howard Lutnick, Nvidia’s renewed chip sales are not just a business move; they’re part of ongoing diplomatic talks between Washington and Beijing. And Nvidia isn’t the only one stepping back into China. AMD is also seeking to resume sales of its MI308 AI chip in the country.

But not everyone is happy with this development. Congressman Raja Krishnamoorthi criticized the decision, saying it “would not only hand our foreign adversaries our most advanced technologies but is also dangerously inconsistent with this administration’s previously-stated position on export controls for China.”

Nvidia’s planned resumption of sales of its H20 AI chips to China is part of US negotiations on rare earths, Commerce Secretary Howard Lutnick said, and comes days after its CEO met President Donald Trump https://t.co/R5Og7ZU9Sp

— Reuters (@Reuters) July 16, 2025

Lutnick pushed back on those claims, telling CNBC, “We don’t sell them our best stuff, not our second-best stuff, not even our third-best. They’re getting our fourth best.” That’s a clear message — the chips being sold are powerful, but not cutting-edge by American standards.

This geopolitical shift in chip sales mirrors other recent developments in AI, such as Grok 4’s breakthrough performance and how AI companions are starting to reshape digital interactions.

U.S. Scrambles to Redefine AI Chip Export Policy

The policy landscape around AI chip exports remains uncertain. In May, the Trump administration officially scrapped the Biden-era AI Diffusion Rule, which aimed to restrict the spread of high-performance AI chips to rival nations.

Since then, there’s been no clear update, leaving a gap in enforcement and strategy.

The urgency is growing. The U.S. wants to prevent advanced chips from being rerouted through countries with weaker trade controls.

Allowing ourselves to become dependent on China for rare earths has been a disaster.

Nvidia’s resumption of AI chips to China is part of rare earths talks, says US https://t.co/sHIZtFy8xb

— Michael Ron Bowling (@mrbcyber) July 16, 2025

Bloomberg recently reported that the U.S. may tighten restrictions on exports to countries like Malaysia and Thailand due to concerns over smuggling. On its end, Malaysia began requiring trade permits for U.S.-made AI chips earlier this week.

Meanwhile, Nvidia is also rumored to be developing a new AI chip tailored specifically for the Chinese market, one that fits within existing export laws but still meets demand.

This move suggests that chipmakers are looking for creative workarounds to preserve access to China’s massive AI market without risking legal or political blowback.

Nvidia’s planned resumption of sales of its H20 AI chips to China is part of US negotiations on rare earths, Commerce Secretary Howard Lutnick said on Tuesday, and comes days after its CEO met President Donald Trump. https://t.co/ddn5g3vCNh pic.twitter.com/oIzobeTu62

— SABC News (@SABCNews) July 16, 2025

As tech policies evolve, companies across the sector are making hard decisions. Some, like Belkin with its WeMo product line, are pulling back from smart home hardware, while others are ramping up cloud and streaming services like Xbox’s push into PC game streaming.

Rare-Earth Elements Become the New Tech Leverage

At the heart of all this maneuvering is a single, powerful resource: rare-earth elements. These minerals are essential for manufacturing high-tech devices, and China currently controls around 70% of global REE production.

The U.S. knows this. It’s why rare-earths have become a central issue in broader trade talks between the two superpowers.

With China potentially able to limit REE exports, it holds a major card in negotiations with the U.S., especially in industries like EVs, defense, and semiconductors.

Nvidia’s chip deal seems to be one piece of a larger geopolitical exchange. By approving the export of a downgraded chip like the H20, the U.S. may be attempting to ease tensions and ensure continued access to essential REEs, all while maintaining some level of technological control.

This balancing act — giving just enough tech to preserve trade ties but not enough to threaten national security — is likely to define U.S.–China tech relations in the years to come.

As chipmakers and governments maneuver through these global dynamics, attention is also shifting to next-gen consumer tech like the Nintendo Switch 2’s quiet appearance on Amazon, showing just how deeply connected trade, innovation, and geopolitics have become.