Chips for Rare Earth: Another Aspect of the US–China Competition
Udumbara
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Drowned out in the on-again, off-again tariff announcements are other important aspects of this ongoing contest between Washington and Beijing. Of great importance is the matter of rare earth elements and advanced computer chips. They may seem unrelated, but in the give-and-take between the United States and China, they were very much linked, and that link may have helped reach something of a resolution on a part of this broad trade dispute.
At first, it seemed as though Washington was at a loss on how to respond except through complaints and tariffs. Still, it finally settled on the export ban on computer chips, no doubt in part as a response to the earlier announcement by China’s DeepSeek artificial intelligence (AI) company that it had found a way to support AI with much less computer power than was previously thought.
This new Trump chip ban enhances the Biden administration’s earlier prohibition of the sale of advanced computer chips to Chinese buyers. It seems that Nvidia got around the Biden administration’s ban by developing its H20 chip. It was just less powerful enough to get around the strictures imposed by that administration.
AMD’s MI308 chip also fits that description. The Trump administration added these chips to the banned list. Needless to say, AMD and especially Nvidia protested. Nvidia CEO Jensen Huang admitted that sales in China were very important to the company’s bottom line. He argued that those sales will provide his company with the support needed to keep it on the cutting edge of AI technology and made a case directly against the ban by announcing that it will do little to slow China’s development of AI. Chinese AI developers, he has said, will simply turn to Chinese inputs from Huawei and others. Evidently, neither Chinese developers nor Beijing is as confident in Chinese sources as CEO Huang seems to be. Chinese cloud-service providers had earlier planned to rely on Nvidia and AMD chips for half their AI accelerator demand this year. The ban seems to have motivated Beijing still further.
For a while, it looked as though Washington and Beijing would agree to lift both bans. U.S. National Economic Council Director Kevin Hassett seemed to think so when he suggested that negotiators from the United States and China meeting in London were on the verge of just such an agreement.
What seems to have emerged is a different trade-off. China will lift its ban on the sale of rare earth elements, but only for six months, while the United States will keep its chip ban but allow Chinese students to attend American universities and colleges.
Beijing’s six-month limit on sales of rare earth elements makes clear that it intends to use the threat of a new ban in future negotiations. Washington still holds back on chip sales. Meanwhile, tariffs remain as they were negotiated earlier in Switzerland.
This agreement, if approved by Washington and Beijing, constitutes a step toward trade peace between these two economic giants, though a small and tentative one. Both sides still have a lot of work to do. Still, it is a welcome development.
