August 13, 2025

China is stirring up a spicy tech drama by telling its local companies to stay away from Nvidia's H20 processors, especially for government or security use. This unexpected move throws a wrench in Nvidia’s plan to recover billions after previous losses in China, and also complicates the Trump administration’s effort to rake in cash by taking a 15% cut from these chip sales. In the past few weeks, numerous Chinese firms received notices from Beijing advising them not to use these less-powerful Nvidia chips for sensitive tasks. These warnings also extend to AI chips from Advanced Micro Devices Inc. (AMD), though it’s unclear if their MI308 chip was specifically mentioned. Officials from Beijing asked companies tough questions: Why buy Nvidia H20s instead of local chips? Are these imports really necessary? Have there been any security problems? These letters came alongside state media stories casting doubt on the safety and trustworthiness of the H20 chips. Nvidia rejects these claims, saying their chips have no security flaws. Currently, China’s tightest rules apply only to sensitive government work — similar to past China restrictions on Tesla cars and Apple iPhones in some places due to security fears. China even banned Micron Technology chips in critical infrastructure before. There’s a chance Beijing might broaden these restrictions soon, but talks are still in early stages. Nvidia said, “the H20 is not a military product or for government infrastructure.” The company also noted China has plenty of homegrown chips and “won’t and never has relied on American chips for government operations.” This Chinese stance makes it harder for Nvidia and AMD to sell AI chips in the world’s biggest chip market. It also raises questions about why the US eased export bans on these chips despite earlier harsh restrictions. Some US officials hint this was linked to a trade deal, but China says the chip sales were never part of any agreement. Beijing’s worries are twofold. First, some officials fear Nvidia chips might track locations or be remotely controlled—a claim Nvidia strongly denies. Meanwhile, US lawmakers consider using such tracking to stop illegal chip smuggling into China. Second, China fiercely wants to boost its own chip industry and favors domestic products over foreign ones like Nvidia’s. The H20 chip, designed specifically for China to meet US export limits, is less powerful but great for AI tasks involving pattern recognition. China's giant firms like Alibaba and Tencent want it, especially since Huawei struggles to make enough advanced chips. Losing access to Nvidia’s H20 would mean Chinese firms pay 3 to 6 times more to run AI models. Despite the pressure, Beijing seems to keep the market open enough to use some H20s while pushing local chips hard. Former President Donald Trump called the H20 chip “obsolete,” adding that “China already has it in a different form.” Trump and his officials defended allowing the chip sales because Huawei already has similar chips. The US strategy is to keep China dependent on older American tech to limit Huawei’s growth. US Commerce Secretary Howard Lutnick said the chip sales tie to a deal for better access to Chinese rare-earth minerals. He explained, “As the Chinese deliver their magnets, then the H20s will come off.” Treasury Secretary Scott Bessent confirmed the magnet issue was “solved.” Interestingly, the first chip sale licenses arrived soon after Nvidia’s CEO Jensen Huang met with President Trump, and both Nvidia and AMD agreed to share China revenue with the US government. This tech and trade saga is far from over, with big stakes for the global chip race.

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Tags: Nvidia h20, China chip restrictions, Us-china trade, Ai chips, Amd mi308,