US-China Trade Tensions Escalate as New Tariffs Target AI Chips

Expanded Controls Target Inference Chips

The U.S. Department of Commerce's Bureau of Industry and Security announced expanded export restrictions on semiconductors bound for China on January 31, adding mid-range artificial intelligence inference chips to the Entity List restrictions that previously covered only high-end training accelerators. The new rules, effective March 1, will require licenses for chips with processing capabilities above 200 trillion operations per second (TOPS).

The threshold captures Nvidia's H20 chip, which was specifically designed to comply with previous export limits and has become China's most widely used AI accelerator. Nvidia disclosed in its last quarterly filing that China-related revenue totaled approximately $5.5 billion, or roughly 15% of total sales.

Industry Impact

Nvidia shares fell 4.8% in after-hours trading following the announcement. AMD, which sells its MI250-derived chips in China, declined 3.2%. Intel, which has smaller exposure to Chinese AI chip sales, fell 1.5%.

"This effectively closes the inference chip loophole," said Gregory Allen, director of the AI Governance Project at the Center for Strategic and International Studies. "Chinese cloud providers will need to accelerate adoption of domestic alternatives from Huawei and other suppliers."

China's Response

China's Ministry of Commerce called the restrictions "economic coercion" and pledged retaliatory measures. Beijing has previously responded to chip controls by restricting exports of gallium, germanium, and graphite — critical materials for semiconductor and battery manufacturing — and by launching anti-monopoly investigations into U.S. companies including Broadcom and Qualcomm.

Huawei Technologies, which has developed its Ascend 910B AI accelerator using SMIC's 7-nanometer process, is expected to benefit from the tighter restrictions on Nvidia. The Ascend 910B delivers roughly 70% of the H100's performance at comparable power consumption, according to benchmark tests published by Chinese researchers.

Third-Country Enforcement

The new rules also tighten enforcement against transshipment through third countries. The Commerce Department designated 14 entities in Singapore, Malaysia, the UAE, and Saudi Arabia as "unverified end users," requiring enhanced due diligence for semiconductor shipments to those entities. U.S. officials said intelligence indicated that some chips ostensibly sold to data centers in the Middle East were being diverted to Chinese buyers.

Impact on Asian Tech Supply Chains

The expanded controls create complications for Asian technology companies. TSMC, which manufactures chips for both Nvidia and other U.S.-designed AI processors, must implement additional compliance checks on orders destined for Chinese customers. Samsung Electronics' memory division, which supplies HBM chips used alongside AI accelerators, may face reduced demand from Chinese cloud providers unable to procure the computing chips those memories attach to.

South Korean and Japanese equipment manufacturers, including Tokyo Electron and ASML's Asian operations, are also affected by broadened restrictions on lithography and etching tools used in advanced chip production.

Diplomatic Fallout

The timing of the announcement, weeks before scheduled trade talks in Geneva, drew criticism from business groups. The U.S.-China Business Council called on both governments to "establish clearer rules of the road" and warned that escalating technology restrictions risked fragmenting global supply chains.

Chinese President Xi Jinping and U.S. President Trump are not expected to meet before April, when both are scheduled to attend the G20 summit in Johannesburg. Trade negotiators from both sides are scheduled to hold preparatory discussions in February.