Semiconductors to Benefit from Trump's 15% Export Tax on China AI Chip Sales, Says Wolfe Research Analyst Chris Caso.

Semiconductors could benefit from Trump's proposed 15% export tax on AI chip sales to China, according to Wolfe Research senior analyst Chris Caso. The U.S. Commerce Department is working on legal details for the agreement with Nvidia and AMD. The tax would encourage domestic chip production and reduce reliance on Chinese suppliers.

President Trump's controversial deal with chipmakers Nvidia and AMD, allowing them to sell advanced artificial intelligence chips to China in exchange for giving the U.S. government a 15% cut of their revenue, has sparked legal questions and national security concerns. The agreement, which is unprecedented in the tech industry, has raised eyebrows among analysts and experts. According to Wolfe Research senior analyst Chris Caso, semiconductors could benefit from this proposed tax [2].

The U.S. Commerce Department is currently working on the legal details of the agreement. The tax is intended to encourage domestic chip production and reduce reliance on Chinese suppliers. However, the legality of the deal is still being questioned, with some experts arguing that it may be unconstitutional [1]. The U.S. Constitution, in Article I, Section 9, prohibits the government from imposing export taxes on American companies.

The implications of this deal extend beyond the legal realm. Scott Kennedy, a senior adviser at the Center for Strategic and International Studies, expressed concerns about national security. He noted that while the Trump administration has argued that the chips are old and that China already has access to similar technology, the potential for these chips to be used for military purposes remains a significant risk [1].

Moreover, the deal could set a precedent for other firms with restricted exports to China. Caso pointed out that the tariff may benefit Nvidia more than AMD due to margin differences. Nvidia's higher margins put it in a better position to handle the additional costs [2]. This development comes at a time when the broader semiconductor sector is showing signs of recovery from a prolonged cyclical downturn, with companies like Texas Instruments and Micron positioned well for the future [2].

Despite the concerns, the semiconductor ETF (NASDAQ: SMH) has reached a record high, surpassing $300 and up more than 24% year-to-date. This suggests that investors are optimistic about the long-term prospects of the semiconductor industry, even in the face of geopolitical uncertainties.

As the legal and strategic implications of this deal continue to unfold, investors and financial professionals will be closely monitoring the developments. The agreement, if finalized, could have significant ramifications for the semiconductor industry and the broader tech sector.

References:
[1] https://www.pbs.org/newshour/show/trumps-ai-chip-deal-sparks-legal-questions-and-national-security-concerns
[2] https://seekingalpha.com/news/4484760-semiconductors-could-benefit-from-paying-15-to-us-for-china-ai-chip-sales-wolfes-chris-caso