Hosted by Christina Ruffini and Sir Richard Dearlove
Guest
Episode Summary
Why is Donald Trump letting Nvidia sell chips to China, and what does it mean for global power politics? In this episode of One Decision In Brief, hosts Kate McCann and Sir Richard Dearlove, former MI6 Chief, break down the unusual deal, where the U.S. government gets a cut of the profits. They explore the strategy behind America’s chip dominance, how China might respond, and what this reveals about the balance between economic interests and national security.
Episode produced by Situation Room Studios. Original music composed and produced by Leo Sidran.
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Transcript
INTRODUCTION
Mccann: Welcome to One Decision in Brief. I'm Kate McCann and I'm joined as always by my brilliant co-host. Hi Richard.
Dearlove: Hi Kate. How are you? I hope you're well.
Mccann: Lovely. Well, I thought today we could talk a little bit about chips, computer chips, which are becoming ever more important around the world in all kinds of new developments, but also now economically too. And really the basis of this story is that the Trump administration has decided, or Donald Trump has decided really, that he's going to allow Nvidia, which I think is the most valuable company in the world, to sell chips to China. They're not their top end chip, it has to be said, but a version of that chip which China up until now hasn't been able to utilize. And Richard, a lot of people feel quite strongly about this, don't they?
WHY THE DEAL IS SO UNUSUAL
Dearlove: Yes, they do. It is, or has been, viewed as a national security issue. The question is how these chips are then deployed and used. And it is quite a surprising turnaround. They're not the most high end ones. They're sort of a grade down. For me, there is only one likely explanation that it may be the wrong one, and someone's thought and taken a decision that it's better for China to be dependent on American technology in this area than it is to allow the Chinese to develop their own material, because it's quite tricky to do. But on the other hand, there's probably an acceptance that the Chinese would get there eventually on their own anyway, so why not supply them with American kit? And you can read into that what you wish, but given that we're very worried in the UK about the deployment of Chinese cellular modules in the Internet of Things, particularly in electric vehicles, and having those reprogrammed from China without anybody, as it were, having authority or control over it here in the UK, it may well be that people are thinking in the States down the same avenue.
Mccann: That's interesting. So I'm going to articulate what you are being very careful about there, which is the suggestion that it may be possible if we flip the argument that lots of people have about China's access to our technology, it may theoretically be possible for there to be some kind of backdoor, a kind of a way to utilize them if they are designed with American technology. Does that mean then that there is no security risk to America allowing China to use these chips? Because some people are worried, maybe more kind of plainly, about the idea that it will allow China to develop things at the moment it can't do. It's a bit limited at the moment.
Dearlove: Of course there's a risk, but it's the question of balancing risk and deciding where your calculation lies, whether there's a risk of loss of technology and the stuff being used strategically against you, or because you're the supplier, you retain some sort of advantage. And I don't want to go into the whole detail of backdoors and their history. There's a certain amount known and published, but let's just leave it that your assumption is in the right direction.
THE FINANCIAL TWIST
Mccann: That's interesting. And because I know nothing about it, certainly nowhere near as much as you do, I can speculate on the benefit of that. But it isn't just about the potential for America to have some insight into what China is doing, even some access or control. That's for others to say. But there is a financial element to this deal, is also very, very unusual, which is that Donald Trump has essentially allowed Nvidia to sell these chips to China, which is a huge market for Nvidia. They're going to make a lot of money out of doing this. But he's asking for a cut. And I think the suggestion was he wanted 20% of the profits of these sales. They've agreed at 15%. But that is a really, really unusual move that some people have called — ransom's the wrong word — but it's a shakedown payment, I think it's been called by some people.
Dearlove: Yes, Kate, I agree with you. That's really unusual. Of course, it's not unusual if you're on the Chinese side of the equation, where, you know, the Chinese have this very tight control if they wish to exercise it, which includes financial extraction from pretty much any company in China, but, of course, it doesn't quite square with the ethos of American capitalism, and for Trump to extract this 15% charge, yeah, it's very opportunist, it's very peculiar, and in a way, you know, it involves the state directly in this issue of the technology and how it's going to be used and how it's going to be deployed. I find the charge more surprising than the decision, if you see what I mean. And, of course, Nvidia now is worth, what is it, 4,500,000,000,000 or something in terms of its current valuation. So it can certainly afford to pay a premium to the US government. That's not going to be a problem economically, but it is a bizarre arrangement.
Mccann: Yeah, it is. And it's also, I mean, as you say, it could potentially be worth quite a lot of money, but it also demonstrates something about Donald Trump, doesn't it? And I suppose the way that we can look at his relationships with China more broadly, it is about trade-offs and economic benefits. We've seen with the trade tariff policy, haven't we, that there was a suggestion originally that maybe Donald Trump and the American government might be about to get very tough on China, but they've delayed those tariff introductions again. They say that talks are going quite well. There's more to do.
THE US-CHINA RELATIONSHIP AND XI'S STANDING
Dearlove: There is always an economic element to everything Donald Trump does. Yeah. You're right. And, you know, these talks with China are at a crucial stage, and there are many dimensions to them, particularly this idea of secondary sanctions in relation to Ukraine. That is unresolved and is possibly part of a future package. I mean, in a way, for all of us, this is one of the really crucial issues of international relations, is how the Trump administration and Xi Jinping modulate this relationship between the world's superpower and the world's coming superpower. So there's a huge amount at stake. What isn't surprising, really, is that neither side's rushing into a conclusive agreement. They're feeling their way forward. There's another dimension to this which isn't much discussed, which has been suggested to me by China watchers, that there's something going on in China with Xi. I wouldn't say there's a crisis in terms of his autocracy and power, but maybe there's some internal attempt in China to cut back on his authority and to have, let's say, not quite so much singular leadership and have, let's say, more involvement from Chinese military leaders or whoever. There is this suggestion that there's some sort of power contest, I wouldn't call it a power struggle, going on inside the fishing platform in Beijing.
Mccann: That's really interesting because we've talked about this on previous episodes, the idea that we haven't seen Xi Jinping in public or as publicly.
Dearlove: Correct. And he's been much less in the public eye. He's been much, you know, less assertive of his leadership and his position. And, you know, there are strong rumors coming out of China, which has been passed on to me by people who are pretty well informed watchers, saying they think something's going on, but they're not sure what, and I'm only sort of reiterating what I've heard. But I think it's very, very interesting because it coincides with this crucial negotiation, and maybe Trump is not hurrying.
Mccann: In terms of an agreement because there's uncertainty as to where the decisions are going to lie ultimately, and whether it is just in Xi Jinping's hands. Yeah, that's interesting, or whether there is a broadening out of the power base there, which, as you say, you know, it might tally with that idea that China is willing to take steps into markets in areas where it potentially wouldn't have before, and maybe look to work with America on trade in a way that it hasn't done before.
Dearlove: Maybe there's a moderation in China's position, and this sort of confrontation between the two countries that we had all feared is not materializing. It's a straw in the wind, but I think it's worth just mentioning it in the context of this podcast.
Mccann: Yeah. It's certainly interesting, especially given what we see going on around the world with American intervention in Iran, for example. I mean, some people had suggested that that was an indication to China that Trump was prepared to follow through, even if he had to be sort of semi-dragged there by Benjamin Netanyahu on some of the promises that have been made. It's very different to what the Biden administration was doing before with the CHIPS Act. It's a departure in terms of policy from many governments around the world to weave in an economic element to a deal like this. And as we mentioned, the chip has been downgraded. I think it's been downgraded sort of 30 to 50% of its capability in order to be sold into China. So there is some safety aspect and some question about what access America has. I think China has raised those concerns as well. But I suppose the final question really is, do you think other countries looking in on this deal might seek to replicate it? To think, well, if America's now going to make money as a government out of some of these big tech companies, maybe that's something that we could do?
Dearlove: Could well be, and of course, the irony is that this is a big issue in Southeast Asia because you've got a lot of very sophisticated chip manufacturing in Taiwan. And of course, South Korea and Japan are also very significant manufacturing companies in this general area. I think there are a lot of people scratching their heads and wondering what it implies for them and their future trade with China.
Mccann: I agree. I wonder what it would mean for the UK government, because it wasn't that long ago that the government here was asking Apple essentially to create a backdoor, or backdoor access into Apple's systems, partly because of this kind of desire in this country for safety, security, being able to track what's going on for users. Now, Apple have refused to do that, and they've disabled some of their top security features for UK users. So it's clear that in some cases, the company is more powerful and much bigger than the government. But in Nvidia's case, they obviously see that there's a benefit to doing this deal with Donald Trump.
Dearlove: Yeah. And it's naive not to suppose that these huge companies, Microsoft and Nvidia, don't have sensitive and close relations with their own government. And I mean, it's part of their industrial policy on both sides. And I mean, the Apple issue is quite interesting because even a customer as beneficial politically as the UK to Apple doesn't necessarily get what it wants. That's more to do with the US government, I think, as well.
Mccann: How so?
Dearlove: Well, I mean, the US government have their own rules and regulations in relation to these companies, which even close allies don't get a look in.
Mccann: Yeah, it's a difficult one, especially where there's vast amounts of money involved. Well, we'll keep an eye on it. I mean, we'll see what ends up happening, because there is a suggestion that this could be at the start of a much bigger deal and a much bigger project and maybe there could be other technologies and chips that might be available to China. We will keep an eye on that one. Richard, it's been nice to catch up with you.
Dearlove: Very nice talking to you, Kate.
Mccann: Well, that's it for this week's One Decision in Brief, and do stay tuned to our regular scheduled episodes of FFED. You can find those on our YouTube page, on onedecision.com or wherever you get your podcast from. I'm Kate McCann. Thanks very much for listening.
