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Stephen Olson

Any lingering doubts about the extent to which US President Donald Trump has rewritten the rules of global trade should have been laid to rest with reports that chip giants Nvidia and AMD have agreed to pay the US government 15 per cent of the revenue from chip sales in China.
The payments are a quid pro quo for approval of the export licences needed to sell semiconductors critical to China’s artificial intelligence (AI) ambitions. The previously stalled licences were approved by the Commerce Department on August 8.
As the US-China geostrategic rivalry has intensified in recent years, both Democratic and Republican administrations in Washington have tightened restrictions on the sale of sophisticated technologies to China.
The export controls on Nvidia’s H20 and AMD’s MI308 chips were put in place earlier this year in response to US concerns that the chips would find their way into Chinese military applications and give Beijing a leg up in the race for AI superiority.
This unprecedented arrangement with Nvidia and AMD does something which until now would have been considered incomprehensible. It monetises US trade policy. Companies are essentially paying the US government for approval to export their products.
With this previously unbreachable Rubicon now successfully crossed, a “pay-to-play” ethos seems to be emerging in Trump’s approach to trade policy. US Treasury Secretary Scott Bessent has made this plain, referencing the arrangement with Nvidia and AMD as a potential model moving forward.
Beyond the payouts from Nvidia and AMD, the recent trade agreements with Japan and South Korea granted relief from excessive tariffs in exchange for commitments to invest billions of dollars in the United States, with a larger share of the proceeds accruing to US government coffers.


This erosion in the firewall between trade policy and financial interests is concerning for a variety of reasons. First, it threatens the integrity of the deliberative inter-agency decision-making process within the US government, opens the door to perceptions of crony capitalism and raises questions over whether US national security assessments could be influenced by financial considerations.
US trade policy has traditionally been based largely on the collective judgments of American officials spread across a variety of agencies who analyse and debate the issues on their merits and pass recommendations up the chain of command. It is a highly deliberative process and in many instances is based on established and transparent methodologies which strive first and foremost to advance US national interests.
Market participants and other observers might agree or disagree with the decisions ultimately reached, but there has always been a baseline of confidence in the integrity of the process. That confidence has now been eroded, as revenue generation from the impacted companies creeps into the decision-making criteria.
Moreover, harmful perceptions about potential opportunities for crony capitalism are growing as the Trump administration and Trump himself are now playing a much more direct role in the trade and investment fortunes of private companies.

The questions are as obvious as they are uncomfortable. Based on what criteria will Trump dole out the billions in investment funds committed to the US in the context of recent trade agreements? What might companies be willing to do to more favourably position themselves as beneficiaries?
Some of the bilateral trade agreements finalised during recent rounds of negotiations included commitments on behalf of trading partners to purchase various amounts of US products. What role, if any, will the US government play in determining which companies fill those orders?
Questions will also arise over national security assessments. Unhelpful speculation is bound to proliferate amid the established linkage between approval of export licences for sensitive technologies and companies’ payments to the US government. Was a given technology sale given the go-ahead because it advances overall US national interest or was it approved because of the millions or possibly billions of dollars in fees it would generate?
As alluded to earlier, the US Commerce Department had concluded mere months ago that American national security considerations dictated that export controls should be placed on Nvidia’s H20 and AMD’s MI308 chips. Have national security conditions dramatically changed since then? Or were the export licences granted based on other factors? Even just the perception that export licences could be “for sale” is damaging and will raise questions in the minds of US partners as to what Washington’s red lines are.
It is important to note that the Trump administration deserves the presumption of integrity and there is no basis to suspect anything other than above-the-board conduct. The problem is the lack of transparency and the cloud of uncertainty created by these unprecedented approaches to trade policy.
In little more than six months in office, Trump has already established himself as the most consequential president on global trade in US history. Although the guiding precepts of the rules-based trade system were already fraying before Trump arrived in Washington, his approach to trade is rapidly overwriting both the formal and informal rule book.
Quaint notions about the primacy of mutually agreed rules and the value of an orderly trade system built on market forces, rather than government fiat, have been replaced by an unapologetically commercialised, transactional approach to trade policy. We have entered new – and potentially perilous – terrain.


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The ethos of the recent Nvidia deal and other agreements leaves US trade partners unsure about Washington’s intentions


The ethos of the recent Nvidia deal and other agreements leaves US trade partners unsure about Washington’s intentions.


Nvidia

China trade

US-China trade war

US-ally trade wars

China tariffs

US-China tech war

Donald Trump

United States

US Politics

Japan

South Korea

China

Scott Bessent

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Trump’s ‘pay-to-play’ trade policy sets a dangerous precedent

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The ethos of the recent Nvidia deal and other agreements leaves US trade partners unsure about Washington’s intentions

The ethos of the recent Nvidia deal and other agreements leaves US trade partners unsure about Washington’s intentions