Last week, the Trump administration did just that, as it allowed the world’s leader in AI chips, US-based Nvidia, to begin selling a lower-level but still coveted chip known as H20 to China.
The move was a dramatic reversal from three months ago, when President Donald Trump banned China from accessing the H20, while also imposing triple-digit tariffs on Beijing. That set off an economically perilous trade clash, as China retaliated by clamping down on exports of minerals and magnets that are critical to American factories, including automakers and defence manufacturers.
China’s decision to cut off access to those materials upended the dynamic between the world’s largest economies. The Trump administration, which came into office determined to bully China into changing its trade behavior with punishing tariffs, appeared to realize the perils of that approach. Now, the administration has resorted to trying to woo China instead.
Officials throughout the government say the Trump administration is putting more aggressive actions on China on hold, while pushing forward with moves that the Chinese will perceive positively. That includes the reversal on the H20 chip.
The H20 decision was primarily motivated by top Trump officials who agreed with Nvidia’s arguments that selling the chip would be better for American technology leadership than withholding it, people familiar with the move say.
But Trump officials have also claimed that it was part of the trade talks. After telling Congress in June that there was “no quid pro quo in terms of chips for rare earths,” Scott Bessent, the treasury secretary, reversed those comments Tuesday, saying that the H20 move was “all part of a mosaic” of talks with China. “They had things we wanted, we had things they wanted, and we’re in a very good place,” he said.
A Chinese Ministry of Commerce official seemed to reject that Friday, saying that the United States had “taken the initiative” to approve the H20 sales. China believes the US should continue to remove its trade and economic restrictions, the official said.
A person familiar with the talks, who spoke on condition of anonymity because he was not authorized to speak publicly, said that the H20 chip was not specifically discussed in meetings between Chinese and US officials in Geneva and London this spring. But the reversal was part of a more recent cadence of warmer actions the United States and China have taken toward each other. For instance, Beijing agreed in recent weeks to block the export of several chemicals used to make fentanyl, an issue Trump has been concerned about.
Recent events have underscored the influence that China has over the US economy. When Trump raised tariffs on Chinese exports in April, some top Trump officials thought Beijing would quickly fold, given its recent economic weakness. Instead, Beijing called Trump’s bluff by restricting rare earths needed by American makers of cars, military equipment, medical devices and electronics.
As the flow of those materials stopped, Trump and other officials began receiving calls from CEOs saying their factories would soon shut down. Ford, Suzuki and other companies shuttered factories because of the lack of supply.
Trump and his top advisers were surprised by the threat that Beijing’s countermove posed, people familiar with the matter say. That brought the United States back to the negotiating table this spring to strike a fragile trade truce, which Trump officials are now wary of upsetting. That agreement dropped tariffs from a minimum 145% to 30%, with the Chinese agreeing to allow rare earths to flow as freely as before.
The administration’s caution when it comes to China has been amplified by Trump’s desire for an invitation to Beijing later this year. The president, who has been feted on other foreign trips, wants to engage in face-to-face trade negotiations with Chinese leader Xi Jinping. Howard Lutnick, the commerce secretary, has begun recruiting CEOs for a potential delegation, setting off a competition over who will get to ride in Air Force One, according to people familiar with the plans.
Craig Allen, a retired diplomat, said both countries were “clearly preparing for a summit meeting,” adding, “that’s bringing forth measures that the other side wants and it’s also holding back measures that the other side doesn’t want.”
“It’s like a dance,” Allen said. “One side makes a move, the other side makes a move to correspond to that.”
The Commerce Department declined to comment. The White House, the Treasury Department and the Office of the United States Trade Representative did not respond to a request for comment.
“The government understands that forcing the world to use foreign competition would only hurt America’s economic and national security,” said John Rizzo, a spokesperson for Nvidia.
A Chinese bargaining chip
Opposition to China has fueled bipartisan action for the past decade. Now, Trump’s more hawkish supporters are quietly watching as the president remakes the party’s China strategy.
Though few are willing to speak out publicly, officials in the Trump administration and in Congress have privately expressed concern that the trade war has given China an opening to finally bring US technology controls onto the negotiating table.
Christopher Padilla, a former export control official in the George W. Bush administration, said the fact that the United States was now negotiating over what were supposed to be security restrictions was “a significant accomplishment for the Chinese.”
“They’ve been after this for decades, and now they’ve succeeded,” he said. “I assume the Chinese are going to demand more concessions on export controls in return for whatever we want next.”
Trump was the first to harness the power of US export controls, by targeting Chinese tech giant Huawei and putting global restrictions on American technology in his first term. But the Biden administration expanded those rules. Concerned that China’s growing AI capacity would advance its military, Biden officials cracked down on exports of Nvidia chips, seeing them as the most effective choke point over Chinese AI capabilities.
Since then, when Chinese officials raised their objections to US technology controls in meetings, US officials had responded by insisting that the measures were national security matters and not up for debate.
But in the meeting in Geneva in May, China finally had a powerful counterargument. Beijing insisted that its minerals and magnets, some of which go to fighter jets, drones and weaponry, were a “dual-use” technology that could be used for the military as well as civilian industries, just like AI and chips. It demanded reciprocity: If the United States wanted a steady flow of rare earths, Washington should also be ready to lessen its technology controls.
It’s not clear exactly what the United States agreed to in Geneva: The agreement has never been made public. But when the United States put out an unrelated export control announcement the day after the Geneva summit concluded, China responded angrily, saying the statement “undermined the consensus” the countries had reached.
In a notice May 13, the Commerce Department said that using Huawei’s AI chips “anywhere in the world” was an export control violation. The notice was directed at other nations considering purchasing Huawei chips, people familiar with the move said, not the Chinese. The announcement appeared to take other parts of the Trump administration by surprise, and within hours, the language in the release was walked back, though no policy changes were made.
Bessent and Jamieson Greer, the trade representative, expressed concerns that such moves could damage trade talks with China, people familiar with the incident said.
China once again clamped down on rare earth exports. Trying to find its own leverage, the United States responded by restricting exports of semiconductor design software, airplane parts and ethane.
The two sides restored their truce in a meeting in London in June. Since then, trade in those products has restarted. But US companies complain that Chinese licenses for rare earth magnets are limited to six months, and that the Chinese government is requesting proprietary information to obtain those shipments.
Beijing has also continued to build out its export controls. On July 15, the day after Nvidia said it would be permitted to sell the H20 in China, Chinese officials announced new restrictions on exports of battery technology.
The United States has been trying to decrease its dependence on China for rare earths, but there is no quick solution. China has a powerful hold over numerous industries, ranging from pharmaceuticals to solar panels to drones.
“The challenge for the Trump administration is, how do they get out of this quagmire?” said Jimmy Goodrich, a senior adviser for technology analysis to the Rand Corp. “It appears some competitive US actions are now at the whims of Beijing, who can now determine the time, place and nature of US tech and trade policy toward China.”
Dealmakers in the White House
The change in the relationship with China has coincided with a separate shift in the administration, in which officials who favor technology controls on China have been sidelined in favor of those who support the tech industry’s ambitions to sell abroad.
Lutnick and Marco Rubio, the secretary of state who has long been an ardent China critic, have hewed closely to the position of the president, who is more of a dealmaker than a national security hawk. And hawkish members of the National Security Council have been fired in recent months, after being accused of insufficient loyalty.
Their absence has paved the way for officials like David Sacks, the White House AI czar, who has criticized export controls, to push for tech companies to have freer rein. Nvidia’s CEO, Jensen Huang, has gone on a lobbying blitz in Washington, pushing politicians to open China for AI chip sales.
Huang has contended that blocking US technology from China has backfired by creating more urgency for China to develop its own technology. He has argued that the Chinese military won’t use Nvidia chips, and pushed back against Washington’s consensus that China is an adversary, describing it a “competitor” but “not our enemy.”
Others have challenged those assertions, pointing to past research that the Chinese military has placed orders for Nvidia chips. Scientific papers published earlier this year also showed Chinese researchers with ties to military universities and a top nuclear weapons lab using Nvidia chips for general research.
Rizzo, the Nvidia spokesperson, said in a statement that “non-military papers describing new and beneficial ways to use US technology promote America.”
In a letter Friday, John Moolenaar, the Republican chair of the House Select Committee on China, said the H20 chip had aided the rise of the Chinese AI model DeepSeek and would help China develop AI models to compete with American ones.
These arguments do not appear to have persuaded the president. In an Oval Office meeting with Huang in July, Trump agreed with Nvidia that keeping American chips out of China would only help Huawei, and decided to reverse the H20 ban.
People familiar with Trump’s views say he has always viewed export controls more transactionally. In his first term, Trump agreed to roll back US restrictions on ZTE at the urging of Xi. In this term, Trump and his advisers have begun using America’s control over AI chips as a source of leverage in negotiations with governments from the Middle East to Asia.
With China, Trump has his own long-standing aspirations. He believes that US businesses have been getting ripped off for decades, and that he can be the one to fix it, particularly if he negotiates directly with Xi. His advisers have begun strategizing toward a more substantial trade negotiation with China focused on market opening, as well as the potential visit this fall.
