Of course, China would rather have its companies training AI with Chinese chips, just as the United States has wanted its firms to avoid Chinese rare earths. While both countries have a strong incentive to move to domestic suppliers, neither has managed to conjure enough high-quality, price-competitive local alternatives to convince the firms in their jurisdiction to buy domestically and eliminate these mutual dependencies. This is an important factor contributing to stability in U.S.-China relations.

In a strange alignment, U.S. national security hawks have sought to stop Nvidia from selling downgraded versions of its artificial intelligence chips to China, and Chinese hawks are escalating attempts to stop Chinese AI firms from buying them. After initially banning their sale in April, U.S. Commerce Secretary Howard Lutnick explained why the Trump administration reversed course and lifted the ban in July: “You want to sell the Chinese enough that their developers get addicted to the American technology stack.” Beijing is worried the U.S. strategy could work, leading Chinese regulators to warn firms not to buy the chip. Nvidia has since halted production of the H20 and is now reportedly hoping to sell an even more powerful chip tailor-made for China.

In a strange alignment, U.S. national security hawks have sought to stop Nvidia from selling downgraded versions of its artificial intelligence chips to China, and Chinese hawks are escalating attempts to stop Chinese AI firms from buying them. After initially banning their sale in April, U.S. Commerce Secretary Howard Lutnick explained why the Trump administration reversed course and lifted the ban in July: “You want to sell the Chinese enough that their developers get addicted to the American technology stack.” Beijing is worried the U.S.