The Legal and Geopolitical Risks in U.S. Tech Export Deals with China

The U.S. semiconductor industry has long been a cornerstone of global technological leadership, but recent executive actions by the Trump administration have introduced a volatile mix of legal and geopolitical risks. These policies, framed as necessary to protect national security, have instead sparked debates over constitutional overreach, market instability, and the long-term viability of U.S. tech dominance. For investors in the AI and chip sectors, understanding these dynamics is critical to navigating a landscape where policy decisions can reshape industries overnight.

Executive Overreach and Constitutional Challenges

The Trump administration's export controls, particularly the 2020 Foreign-Produced Direct Product (FDP) rule, extended restrictions to non-U.S. semiconductor manufacturers like TSMC and Samsung if they used U.S. technology. While this aimed to curb China's access to advanced chips, it also raised significant legal questions. Critics argue that the administration's 2025 revenue-sharing agreement with Nvidia and AMD—requiring a 15% levy on China-related AI chip sales—functions as an unconstitutional export tax. The U.S. Constitution explicitly prohibits export taxes under Article I, Section 10, and the 2018 Export Control Reform Act (ECRA) bars fees for export licenses.

This arrangement blurs the line between national security and fiscal policy, creating a precedent where trade policy is monetized. Legal experts warn that such actions could invite judicial challenges or congressional scrutiny, as seen in the 2025 guilty plea of Cadence Design Systems, which paid $140 million for illegally exporting EDA tools to China. The case underscores the administration's aggressive enforcement of export laws, but also highlights the risks of a regulatory framework that prioritizes short-term gains over long-term stability.

Market Volatility and Investor Uncertainty

The semiconductor sector's volatility is evident in the stock performance of key players. For instance, reflect sharp swings tied to export policy shifts. In 2025, the resumption of AI chip sales to China under the revenue-sharing agreement initially boosted investor confidence, but lingering legal uncertainties and geopolitical tensions have since tempered gains. Similarly, AMD's stock has shown sensitivity to export control announcements, with illustrating how policy news directly impacts valuations.

Investors must also consider the broader implications of supply chain disruptions. The Trump administration's 50% tariff on copper products in July 2025, justified as a national security measure, has rattled markets reliant on copper for semiconductor manufacturing. Such policies, while aimed at reducing foreign dependency, risk alienating key allies and triggering retaliatory measures from China, further destabilizing trade flows.

Long-Term Implications for the AI and Chip Sectors

The administration's focus on “technological decoupling” from China has had mixed results. While it has curtailed access to certain advanced technologies for Chinese firms, it has also driven U.S. companies to seek alternatives in Japan and the Netherlands. This shift, however, comes at a cost: reduced R&D investment in the U.S. and a fragmented global supply chain. For example, the Semiconductor Industry Association has warned that U.S. export controls could erode trust in American technology, pushing clients to diversify suppliers.

Moreover, the legal ambiguities surrounding executive actions create a regulatory gray zone. If courts rule the revenue-sharing agreement unconstitutional, it could invalidate similar future policies, forcing abrupt policy reversals that destabilize markets. Investors should also monitor congressional efforts to amend ECRA or impose stricter oversight on executive authority, which could either clarify or complicate the legal landscape.

Investment Advice: Hedging Against Geopolitical Risks

For investors, the key takeaway is to balance exposure to the semiconductor sector with hedging strategies. Diversifying across regions and technologies—such as investing in companies with strong domestic manufacturing capabilities or those less reliant on China—can mitigate risks. Additionally, allocating to legal and compliance-focused firms may offer indirect gains as regulatory scrutiny intensifies.

reveals a clear inverse relationship: as geopolitical tensions rise, sector volatility spikes. Investors should also consider defensive assets, such as gold or government bonds, to offset potential downturns linked to policy shifts.

Conclusion

The Trump administration's export policies have exposed the fragility of a global semiconductor industry already strained by geopolitical tensions. While national security concerns are legitimate, the conflation of trade policy with fiscal extraction risks undermining both legal norms and market confidence. For investors, the path forward lies in vigilance—monitoring legal developments, diversifying portfolios, and preparing for a landscape where policy decisions can redefine industries as swiftly as they are made. In an era of escalating tech rivalry, adaptability is the only sure defense.