US-China AI Chip Tensions Escalate Amid Restrictions and Suspicions

China is pressuring the US to ease restrictions on exports of high-bandwidth memory (HBM) chips, which are crucial for AI development. Nvidia's H20 chips, designed for the Chinese market, are being criticized by state media, while the US Department of Commerce has begun issuing licenses to export the chips to China. The Sino-US tech rivalry is intensifying, with US restrictions hampering sales to China while remaining a major source of revenue for US manufacturers.

China is exerting pressure on the U.S. to relax export controls on high-bandwidth memory (HBM) chips, a critical component for artificial intelligence (AI) development. This comes as part of broader trade negotiations ahead of a potential summit between President Donald Trump and President Xi Jinping [1].

HBM chips are essential for manufacturing high-performance AI chips, accounting for about half of their value. Gregory Allen, an AI expert at the Center for Strategic and International Studies (CSIS), underscores their significance, stating, "HBM is crucial for advanced AI chips" [4]. China's demand for HBM chips is seen as a bargaining chip in U.S.-China trade negotiations, with Chinese officials requesting the easing of export restrictions [1].

Nvidia's H20 chips, designed for the Chinese market, have been at the center of this controversy. Chinese state media has criticized the H20 chips, alleging they are not technologically advanced or environmentally friendly. Nvidia has defended its chips, stating that they do not contain backdoors that could be remotely controlled [2]. Despite these allegations, the U.S. Department of Commerce has begun issuing licenses to export the H20 chips to China [3].

The U.S. has been cautious about exporting advanced AI chips to China due to national security concerns. The Biden administration has concluded that export controls on HBM chips are a significant constraint on China's ability to produce AI chips at scale [1]. Relaxing these controls could potentially allow Chinese companies like Huawei and SMIC to produce millions of AI chips annually, while also diverting scarce HBM from chips sold in the U.S. [1].

The U.S. semiconductor industry is facing a delicate balance. While export controls have been a source of revenue for U.S. manufacturers, they have also restricted sales to China. Nvidia, for instance, forecasts that lost H20 sales under the new restrictions could amount to $8 billion in Q2 FY26 [3]. AMD, similarly, has reported a $155M operating loss in Q2 due to the restrictions on its MI308 chip sales to China [3].

The U.S. and China's semiconductor rivalry is intensifying. China is stepping up efforts to localize its semiconductor industry, but it faces significant challenges in high-tech technology and productivity. The U.S. government is considering additional measures to monitor AI chips in China, including smuggling and the use of non-regulated game chips for AI data centers [4].

In conclusion, the U.S. faces a complex decision regarding HBM chip export controls. Easing these controls could boost China's AI capabilities but also potentially hamper U.S. national security interests. The ongoing negotiations and potential summit between Trump and Xi Jinping will likely play a significant role in shaping the future of U.S.-China trade and semiconductor relations.

References:
[1] https://www.reddit.com/r/hardware/comments/1mmdn87/china_wants_us_to_relax_export_controls_on_chips/
[2] https://www.cnbc.com/2025/08/10/nvidia-china-h20-chips.html
[3] https://www.trendforce.com/news/2025/08/11/news-nvidia-amd-make-historic-deal-reportedly-pay-15-of-h20-mi308-china-sales-for-export-licenses/
[4] https://www.mk.co.kr/en/business/11390412