Delete USA

China is banning Nvidia chips in an unexpected second order effect of the US tech embargo

Since Trump and Biden launched the tech and trade wars with China, I have written several essays arguing that Beijing should pursue a full decoupling with the US for national security and economic competitiveness reasons.

It seems that is happening right now. Beijing just banned its big tech companies from buying the Nvidia H20 and RTX 6000D chips. Nvidia developed these two GPU AI accelerator chips specifically for the Chinese market in compliance with the US ban of advanced AI chips to China.

Beijing just threw back the trade embargo playbook in Washington’s face. This is a textbook example of how an ill-conceived coercive policy blows up in the face of the perpetrator. And another case study of how the far more intelligent technocrats in Beijing have outsmarted the short-sighted political functionaries in Washington.

Let’s examine what happened.

Starting in Trump’s first term, the US regime has upped the antes in containing China’s technological rise. It first banned US chip sales to Huawei in an effort to destroy the telecom and mobile phone giant. That failed miserably but as expected, Washington’s default option when faced with failure is to double down.

During Biden’s time in office, he further escalated the tech war by banning AI chips, software, and even lithography machines to the Chinese market as a whole. The explicit aim of the tech bans is to stop China from reaching the US level of AI development.

Since China is the world’s largest market for semiconductors, the Biden regime wanted to keep making money from China while impeding China’s tech progress. The solution was to allow the sales of chips one or two generations behind the cutting edge.

Nvidia, the effective global AI chip monopoly, designed the H20 chip specifically for the Chinese market in compliance with the Biden export control. Nvidia’s strategy was to continue to profit from the Chinese demand and tie Chinese AI developers to its CUDA software ecosystem without selling China the latest AI chips.

However, when a little-known Chinese AI firm, DeepSeek, shocked the tech world with the launch of its DeepSeek R1 large language model in January 2025, the world suddenly realized Chinese AI engineers were able to develop world-class AI models even with the much less powerful accelerator chips.

DeepSeek achieved the breakthrough by using reinforcement learning to allow its LLM to develop reasoning abilities through self-evolution. The innovative training method didn’t require as much compute as similar models in the US and successfully circumvented the chip moat Nvidia tried to build around its most sophisticated products.

As a reaction, the second Trump regime immediately banned even the sales of the watered-down H20 chips to Chinese tech firms. Nvidia was forced to write off $5.5 billion worth of unsold H20 chips in its inventory.

With no access to advanced western AI chips, Beijing realized the only way to develop the AI industry in China is total self-reliance in every step of the semiconductor value chain.

Chinese tech companies started to invest heavily in the AI chip stack from design, manufacturing, to software architecture. Huawei, Cambricon, and Alibaba have all recently announced production of AI accelerator chips that are only one generation behind Nvidia’s most powerful chips.

In effect, Trump’s H20 ban has left a market worth hundreds of billions of dollars, that used to be monopolized by Nividia, wide open for Chinese domestic producers.

Realizing the US is at the risk of losing the biggest single chip market to its Chinese competitors, Jensen Huang and David Sachs, Trump’s “AI Czar”, lobbied the Trump White House to loosen the ban and return to the Chinese market. They both stated it is in the US’s best interest to keep Chinese tech companies on the hook of Nvidia products, just not the best ones.

Subsequently, Trump did lift the ban and Howard Lutnick, Trump’s Secretary of Commerce, even went on to CNBC to boast that “we’ll have the Chinese chip market but sell them chips that are not our best, not our second best, not even our third best”.

The ex-Wall Street financier was so arrogant that he actually thought he was clever enough to let Nvidia continue dominating the Chinese market even with a castrated second rate product.

Beijing, led by a leadership trained as engineers rather than bankers and lawyers as the US, saw right through the little ploy. Instead of letting H20 back to the Chinese market, Beijing has started an investigation on potential security issues with the H20 chips by raising concerns over possible back doors and remote shutdown kill-switches.

Again, here Washington itself supplied the ammunition for China’s suspicion. In public Congressional hearings, US congressmen openly requested US chip producers to embed geo-fencing functions in their chips. One can only speculate what other “functions” are planted in those Trojan horses.

In Glenn Greenwald’s book No Place to Hide, he described in great detail how CIA installed backdoor software in Cisco servers shipped to China as disclosed by the Edward Snowden files.

Over the last week, the Cyber Administration of China officially requested Chinese tech firms such as Tencent and ByteDance to stop testing of the Nvidia new China-only RTX 6000D chips and cancel any orders.

In addition, the Chinese Ministry of Commerce has launched an anti-monopoly investigation against Nvidia due to its failure to comply with the agreement with Chinese regulators when Beijing approved its 2020 acquisition of the Israeli company Mellanox Technologies.

It is clear Beijing has decided it will do without Nvidia and China will build its AI industry completely in separation from US technologies.

In 2018, Huawei launched a top secret inhouse project called “Delete America” when the company was targeted for destruction by the first Trump regime and had to rid itself of every American technology for self protection.

Now China is embracing a full-spectrum nationwide “Delete USA” from its technological development.

At the technical level, local Chinese AI chip makers such as Huawei and Cambricon have already developed accelerator chips that have reached performance parity with Nvidia’s China-specific chips.

Through superior networking, Huawei has built more powerful AI compute super-nodes such as CloudMatrix 384 based on Ascend 910C than the state-of-art Nvidia GB200 NVL 72 compute rack based on its most advanced Blackwell chips.

As Jensen Huang himself pointed out, AI is a parallel computing issue. Rather than competing on the performance of each individual AI chip, Huawei is changing the game by linking more chips to build greater scale and deliver better performance at the rack level.

With China’s far superior power generation capacity, China can afford to outbuild the electricity-hungry AI data centers than the US, giving it the ultimate competitive advantage in the AI war.

As I wrote before, Beijing is also investing heavily in next generation semiconductor technologies from photonic chips to third-generation semiconductors such as those based on indium selenide (InSe), a 2D material that has shown significant potential to outperform traditional silicon chips.

Researchers at the Peking University and Remin University just announced breakthroughs in the production of InSe wafers, a move that could potentially disrupt the silicon chip altogether. I intend to write on this in a future piece.

The original Nvidia AI strategy was brilliant. Nvidia achieved market dominance not just through its superior AI accelerator chips but also its CUDA software ecosystem that has locked in AI developers. It is a model that is extremely difficult to break. Just ask AMD if you don’t believe it.

Competitors like Huawei cannot hope to break the stranglehold as Nvidia enjoys a flywheel of market dominance and high profit margins that will finance further R&D and expand its lead.

Five years ago, there was little prospect of Chinese tech firms breaking free from Nvidia’s technological control over the AI sector (this is why Nvidia is the world’s most valuable company).

However, the malicious move by the US regime to chokehold China’s technological development has inadvertently broken the chokehold. No Chinese tech company is immune from US sanctions and chip bans. Now they are all incentivized to find alternatives to reduce their dependency on US tech.

Chips that don’t match Nvidia’s best are better than no chips at all. As companies such as Huawei and Cambricon now provide options for AI accelerators, they are also breaking developers away from Nvidia’s CUDA software network. Huawei has launched the open-source CANN architecture.

With hundreds of billions of dollars at stake, numerous new entrants are joining in the race, further eroding Nvidia’s dominance in the long run. One outcome is certain – Nvidia will be locked out of the Chinese chip market, the largest in the world, and Chinese companies will have the market for itself.

China is set to build a completely separate and parallel AI system from the US. The China system may still lag in compute performance for now but has zero dependence on the US.

Once the system scales and matures at the application level, we can expect Chinese AI will compete with the best AI players from the US in the global markets. Much like the EV industry today.

The short-sighted belligerence of the US regime has successfully undermined the dominance of its own tech champion, very much the opposite story of how Beijing has groomed China’s dominance in the rare earth industry.

Washington has found its belligerence against China blown up in its face repeatedly –

- After the US congress passed the Wolf Act to block China from the International Space Station (ISS) in 2011, China built its own Tiangong Space Station, which is expanding and upgrading while the ISS is clocked to retire in a few years with no replacement in sight

- After the US shut down GPS signal to harass China’s Yinhe cargo ship in 1993 in the Red Sea, it spurred Beijing to build the Beidou satellite navigation system, which is now more advanced than the aging GPS system

- After the US intervened in the Third Taiwan Strait Crisis in 1996, China decided to develop a full A2AD strategy with focus on anti-ship hypersonic missiles that can keep US ships from Chinese shores. Now the DF and YJ families of hypersonic missiles can “sink the entire US carrier fleets in 20 minutes” (quote from Hegseth)

As the US regime pursues a zero-sum adversarial relationship with China, Beijing is implementing a full speed “Delete USA” strategy to decouple completely –

- Pursuing full tech self sufficiency, especially in AI

- Winding down trade relationship – cutting off all purchase of US farm products and energy products such as coal and LNG

- Selling off US debt

- Making US education less attractive to Chinese students – more and more jobs in government departments, state-owned businesses, and even private tech firms are off limits to students with a US degree

- More US businesses operating in China such as Starbucks and Nike are facing consumer pushback

It takes two to tango. The arrogant and ignorant Washington operatives have always assumed their belligerence is never reciprocated and no one dares to punch back at the bully. Maybe they are right when it comes to its subservient vassals in Europe, Japan, South Korea and the 5 eyes Anglo sphere.

But they have met their rival. China won’t succumb to Washington’s coercion or Trump’s “charm”. Instead, it will hit the delete button.