Since returning to the White House, Donald Trump has stepped up his ideological and trade war against his great Chinese rival—much to the chagrin of Nvidia, which finds itself caught between a rock and a hard place.
China has always been one of the favorite targets of the controversial US president, which he considers a major economic and political threat. Barely ten days into his second term, he decided to flex his muscles.
On February 1, he went on the offensive by imposing a 10% tax on Chinese imports. Xi Jinping's country was quick to react: three days later, it responded by imposing a 15% tax on many strategic products. This economic ping-pong game continued until the beginning of April, when taxes on Chinese products exceeded 100%.
A vital market for Nvidia
However, it has been forced to water down its stance in recent days, as this escalation has had a very tangible impact on the American economy. Indeed, many companies, including some giants that are particularly important to the country's economy, have been severely affected by these measures. This is particularly the case for Nvidia.
Jensen Huang's company generates a considerable portion of its profits from the Chinese market. Giants like Alibaba and Tencent generated around $17 billion in the last fiscal year, or about 13% of the firm's total sales, according to Reuters. But recent restrictions on the export of the H20 chip, a product designed specifically to circumvent the Biden administration's trade restrictions, have been a real blow. According to the Financial Times, the company estimated that this measure could generate a revenue shortfall of around $5.5 billion.
Beyond sales, China is also an absolutely vital logistics hub for Nvidia. Its business model relies largely on components assembled there.
Jensen Huang rolls up his sleeves
To save his business, the big boss has decided to take matters into his own hands. According to the Financial Times, he recently visited Beijing to reaffirm that it was a “very important market for Nvidia.” He also called for an easing of tensions so that his company could continue operating in this strategic market.
“The increased restrictions have had a significant impact on our business,” quotes Tom’s Hardware. “We grew up in China, and China has seen us grow over the past 30 years. Of course, it’s a very large market, where we interact and work with Chinese companies. This has allowed us both to grow.” We will therefore continue our efforts to optimize our products, make them compliant with regulations, and continue to serve the Chinese market.»
A statement that is likely to raise some eyebrows on the part of the government, which has repeatedly tried to hit the Chinese economy and innovation through measures such as the Chips and Science Act.
CHIPS and Science Act: the United States puts 280 billion on the table to counter China
But despite these reservations, Donald Trump and his colleagues will likely have no choice but to make some concessions. Even though Nvidia has scaled back its operations since its spectacular stock market explosion last year, it remains firmly established in the top 5 most capitalized companies in the world. It therefore plays an important role in the economic dominance so dear to the American government. In this context, it will be interesting to see how the administration and Nvidia will navigate this delicate shift.
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