The Lawfare Podcast: Scaling Laws – Export Controls: Janet Egan, Sam Winter-Levy, and Peter Harrell on the White House's Semiconductor Decision

Date: August 21, 2025
Guests: Janet Egan (Center for a New American Security), Sam Winter-Levy (Carnegie Endowment), Peter Harrell (Carnegie, former Biden official)
Host: Alan Rosenstein (University of Minnesota, Lawfare Institute)
Episode Theme:
A deep dive into the Trump administration’s controversial deal allowing Nvidia to sell advanced AI chips to China in exchange for a 15% export revenue "tax", with analysis of the strategic, diplomatic, and legal implications for U.S.-China relations, semiconductor policy, and national security.

Episode Overview

This episode of Scaling Laws explores the recent, unprecedented U.S. government decision permitting AI chipmaker Nvidia to sell advanced H20 semiconductors to China, provided the company pays the federal government 15% of the sale revenue. Host Alan Rosenstein leads a conversation with three technology policy and export control experts to dissect the policy’s:

• Strategic impact on U.S.-China technological competition
• Ripple effects on international alliances and supply chain partnerships
• Serious statutory and constitutional questions raised by the revenue-sharing arrangement

The guests also discuss broader consequences for AI export policy, the future of global semiconductor controls, enforcement challenges, and the potential for further expansion of such deals.

Key Discussion Points and Insights

1. Background: U.S. Semiconductor Export Controls

[04:32] Sam Winter-Levy

• Trump’s first term and the Biden administration escalated export controls targeting semiconductor manufacturing equipment and, as of Oct 2022, advanced AI chips (e.g., Nvidia A100, H100).
• U.S. wanted to “thread the needle”:
  • Cripple China’s AI industry without pushing China to rapidly develop its own semiconductor ecosystem.
  • Allowed sales of downgraded chips (e.g., Nvidia H20) designed to skirt the strictest controls.
• Despite new controls in Biden’s last months, H20 sales to China remained legal.

[07:05] Sam Winter-Levy:
Debate remains on whether these constraints meaningfully slow China’s tech ambitions or merely motivate faster domestic development.

“China is already all-in on indigenizing the semiconductor supply chain... They’re not going to spend less effort on this just because they get access to a few more Nvidia chips.” – Sam Winter-Levy

Evidence suggests China remains “compute constrained”—limited chip access is their main bottleneck, not talent or funding.

2. The Trump Administration’s Shift and the 15% “Tax” Deal

[10:56] Sam Winter-Levy

• Trump first restricts H20 exports to China, before reversing and creating a new system: Nvidia and AMD can now export H20 (and potentially newer chips) to China if they pay the U.S. government 15% of the sales.

[13:09] Janet Egan

• “A very unusual, unprecedented deal...”
• Trump personally negotiated with Nvidia CEO Jensen Huang, initially asking for 20%:

  “It was really interesting to me to see President Trump own up directly ... ‘I asked for 20%. We settled on 15%.’” – Janet Egan [13:25]

Implications:

1. Erodes U.S. strategic advantage:

   • H20 is still a highly advanced chip China cannot produce or source elsewhere.
   • Access to these chips directly underpins China’s AI aspirations.

2. Undermines international alliances:

   • U.S. previously relied on close cooperation (Netherlands, Japan, South Korea) for controls.
   • Now, while allies are asked to sacrifice business, the U.S. itself sells to China for cash:

   "I can’t imagine this is going to go down well in this sort of semiconductor supply chain alliance." – Janet Egan [17:51]

3. Raises legal/constitutional questions:

   • Export tax structure is unprecedented and possibly impermissible.

3. Technical Dimensions: Why H20 Matters

[15:05] Janet Egan

• H20 chips maximize “high bandwidth memory” (HBM), critical for “reasoning models” and advanced inference, not just training.
  • They enable deployment of sharper models, synthetic data generation, and experimentation—accelerating future Chinese AI progress.

[16:12] Janet Egan

• “We’re going to be providing China chips that allow them to deploy models better and that allows models to think more cleverly... These are key things that are going to help accelerate China’s progress at frontier AI models.”

4. Legal and Constitutional Questions

[21:17] Peter Harrell

• Uncertainty remains about what the deal precisely entails: Is it a licensing condition, a side agreement, a government fee, or something else?

• Statutory Issue:

  • U.S. law (50 USC 4815C, Export Control Reform Act) forbids Commerce from collecting fees tied to export licenses. A direct 15% revenue-for-license demand is likely illegal.

  “It is unlikely that if that is a condition of the license ... it's legal.” – Peter Harrell [23:01]

• Constitutional Issue – Article 1, Section 9:

  • Prohibits taxes on exports from any state.

  “No tax or duty shall be laid on articles exported from any state.” – [50:56] Peter Harrell

  • Key questions: Are these chips “exported from a state”? Some are fabricated abroad (Taiwan), but U.S. IP is involved.

  • No direct precedent; litigation highly unlikely unless more companies are drawn in or future policies apply the concept broadly.

5. Strategic Ramifications & Critique

[32:02] Alan Rosenstein & Janet Egan

• AI “race” is both about training (raw compute, model development) and deployment (inference at scale).
• U.S. action risks helping China’s AI ecosystem—if the H20 can now be imported in volume.

[34:17] Sam Winter-Levy

• Financial upside for the U.S. is a few hundred million dollars at most—trivial compared to the advantage handed to China.

  “A lot of the reaction from national security professionals has been ... there is some dollar value you could put on this that might make it make sense, but it’s going to be a lot more than a few hundred million dollars ...” – Sam Winter-Levy

[35:38] Peter Harrell

• Tax brings no actual national security benefit:

  “The money is almost immaterial ... If there is a national security threat, giving the US government 15% does absolutely nothing to address it.”

6. Diplomatic Fallout: All Allies, No Consistency?

[20:00] Janet Egan

• Allies may lose faith in U.S. strategic consistency:

  “If we're asked to be tough on China ... can we be guaranteed that the U.S. is going to be consistent and by our side?”
  “Countries around the world are probably asking ... do we need to be hedging against the risk that there might be a grand deal struck ...?”

7. Chips vs. Cloud: Alternative Approaches

[40:46] Janet Egan

• Instead of selling hardware, U.S. could rent chip capacity through the cloud. This would:

  • Maintain control (can revoke access if politics change)
  • Meet some Chinese demand for inference
  • Retain leverage while protecting core technology

• On-chip control (monitoring, kill switches, location checking) is feasible for smuggling prevention, less so for post-export control inside China.

8. The Future—Key Signals to Monitor

[56:51] Sam Winter-Levy

• Watch for:
  1. Congressional pushback: Will Congress intervene against the administration?
  2. Scope expansion: Does this export-for-revenue model expand to more advanced chips or other tech sectors, or remain a one-off?
  3. Downstream effects: Will the deal catalyze advances in Chinese AI or remain strategically benign?

[60:04] Janet Egan

• Track number of leading Chinese AI companies, especially in frontier model development.
• Monitor for surge in Chinese domestic chip production and state subsidies.

Notable Quotes & Moments

• On the nature of the deal:
  “It was really interesting to me to see President Trump own up directly to his negotiations with Jensen on this, to say that, 'Oh, I asked for 20%. We settled on 15%.'” – Janet Egan [13:25]

• Legal skepticism:
  "I think that it is unlikely that if that is a condition of the license or related to the license, it's legal." – Peter Harrell [23:01]

• Strategic assessment:
  "Access to advanced AI chips is probably the single most important obstacle to [China’s] AI ambitions ... The thing they don't have right now is advanced AI chips." – Sam Winter-Levy [09:20]

• On diplomatic fallout:
  "Now the US is saying, 'Hey China, we'll give you some, but we're going to take some additional revenue for us.' And so I can't imagine this is going to go down well in this sort of semiconductor supply chain alliance." – Janet Egan [17:51]

• On the lack of national security benefit:
  "If there is a national security threat, giving the US government 15% ... does absolutely nothing to address the national security threat." – Peter Harrell [35:38]

• Long-term concern:
  "If AI really is the kind of core strategic technology of the coming years, then ... it's worth trading away a massive lead in compute, or eating into a massive lead, in exchange for ... some additional marginal improvements to the Treasury's revenue." – Sam Winter-Levy [58:10]

Key Segment Timestamps

• Background on Export Controls: [04:32] – [10:56]
• Trump Admin's New Semiconductor Policy: [10:56] – [13:09]
• Implications for U.S. Strategic Advantage: [13:09] – [20:36]
• Legal Statute & Constitutionality: [21:17] – [54:56]
• Cloud Alternatives vs. Hardware Sales: [40:46] – [47:56]
• Looking Forward: What to Watch: [56:51] – [61:19]
• Memorable Quotes & Policy Critique: Interspersed throughout, prominently at [13:25], [23:01], [35:38], [58:10]

Tone and Language

• Direct, frank, at times incredulous—guests and host are clear about the unprecedented (and perhaps reckless) nature of the deal.
• Candid humor: “This is cuckoo pants, right? My jaw dropped when I read this reporting.” – Alan Rosenstein [13:15]
• Technical expertise balanced with policy realism, reflecting deep concern for both strategic logic and procedural integrity.

Takeaways

• The 15% Nvidia export revenue deal is unprecedented and likely illegal by statute and possibly unconstitutional.
• The strategic cost of boosting China’s AI deployment likely dwarfs the fiscal benefit.
• The move risks U.S. credibility among allies and the integrity of the global export control regime.
• Washington faces a choice: maintain tight technology controls for national security, or monetize access (potentially at the expense of both security and alliances).
• Future policies and litigation will hinge on whether this is a one-off or the beginning of a broader shift toward transactional technology export governance.