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- [00:01]
A
I'm Scott.
- [00:02]
B
I'm Bill. And we're the Trade Guys.
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C
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Alex Kisling and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode, we discuss President Trump's decision to allow the sale of Nvidia's H200 chips to China. Then we take a look at the status of the US Indonesia trade deal before heading into the holidays with a look at North Pole tariffs. All that and more on today's Trade Guys. Well, trade guys, we've made it to our final show of 2025, and what a year it has been. We'll close out by covering a couple of recent developments and then fittingly take a quick trip to the North Pole, or at least as close as we can get with a trade angle. But I want to start with President Trump's decision last week to allow Nvidia to sell its powerful H200 chips to China with the condition that 25% of the revenue from those sales go to the US government. This was a major decision that has been hotly debated and has raised a lot of questions, including whether China will even allow the chips to be sold domestically, the national security implications of selling advanced AI chips to China, and then the legal question of whether it is permissible for the US Government to take a cut of the revenue from these sales. Bill, lots to unpack here, but first, get us up to speed on how we got to this point and the key arguments on both sides of the debate.
- [01:37]
B
Well, it raises a bunch of issues that have been debated for 40 years, which is basically what's the best tactic for keeping the good stuff out of the hands of the bad guys. And it also ties into Trump's basically yo yo policy with respect to China. Some years, some weeks we tighten, some weeks we loosen. We can kind of go back and forth, particularly on chip controls. It's not clear what his ultimate objective is. We said and thought in the summer and early fall that he was taking a soft line to get a meeting with Xi Jinping. Well, he got one. Whether it produced anything besides a ceasefire remains to be seen. But the gossip I'm getting from people who talk to other people in the administration is that a lot of stuff that would be construed as anti Chinese tighter controls or other trade measures are all on hold because for the time being, the administration does not seem to want to irritate them more than they're already irritated. I'm not sure why, but things have been put on pause now. We'll see. Getting away from export. Well, not entirely export controls for a minute. One of the looming issues that will loom right after Christmas is that the Section 232 investigation that Trump started on chips on semiconductors, the deadline for submitting that to the president is December 27th. So two days after Christmas.
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C
Yep.
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B
The gossip is Commerce will make the deadline. It's not clear what Trump will do. I imagine Commerce will recommend tariffs. They almost always do, and that will irritate the Chinese. The big question there will be whether the tariffs just covered chips themselves or also the products that contain chips, which by far the more important import. But we've been going back and forth. The H200 may or may not be a gift to China. I think it's intended as a gift to China. But it raises a bunch of issues, all of which you conveniently spelled out. The first one is legality, and we talked about this with the H20 chip. When that one was allowed, that one was specifically designed to be below the Biden administration's control parameters so that it could be sold. And then it was banned, and then it was unbanned. And when it was unbanned, the deal was that the administration would, I think, in that case, get 15% of the profits.
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C
That's right.
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B
That deal apparently has never been consummated because they haven't figured out a legal way to do it. And I think there are two obvious obstacles to that. The, the underlying legislation that sets up the control program, ECRA, the Export Control Reform Act 2018, contains a provision that explicitly says you cannot have a fee to get an export license. On top of that is Article 1, Section 9, Clause 5 of the Constitution, which says you can't tax exports from any state. And that last section is important because the H2 hundreds, I believe, are made in Taiwan by TSMC. Nvidia does the design. Other people do the production. So technically, you could argue that they're not an export from the U.S. oh, that's interesting. However, because it's a U.S. company, we have jurisdiction, and they are subject to U.S. controls. So, you know, lawsuits coming, you can see that anyway. Well, lawsuits maybe not coming, because if they do it, who's going to sue? You know, the company isn't going to sue because they agreed to it in the first place.
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C
Right.
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B
You need to be harmed to sue. And I'm not sure who's harmed. I mean, you can argue, as members of Congress already have, that the national security is harmed, but the national security is not a plaintiff. I mean, you have to find a plaintiff that would have standing. So that's the first threshold here. If they can't close a deal on 15%, which actually has not made a lot of difference because they're not selling very many H20s, but if you can't close a deal on that one, you are not going to be able to close this deal, which is a lot bigger. The bigger thing it does though is it takes us back a number of years. For decades prior to 2022, US policy was to keep the adversary a generation or two behind us. That allowed us to stay ahead. It also allowed us to sell the enemy a lot of stuff, make a lot of money which would go into future development of next generation technology and keep them behind. Biden stopped that by putting in fixed limits with his high fence, small garden approach. The H200 takes us back to the way we used to do it. So it's hard for me, who's one of the people that was involved when we developed this policy in the 90s. It's hard for me to say it's wrong. The criticism though has been telling, which is that it's pretty clear that the H200 is not the state of the art, cutting edge, latest generation chip.
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C
Right, The Blackwells.
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B
That's the Blackwell line. It's closer to it than anything else. It is clearly superior to any current Chinese product. There is disagreement amongst experts, and I've watched this debate go back and forth, there's disagreement among exports about how far ahead of the Chinese it is. Nvidia claims it's basically kind of an incremental advance. The critics of which there are many, particularly in Congress, who are calling for relative secretaries to come up and speak to them about this and provide more information. The critics say that Nvidia is exaggerating the state of Chinese technology and that the Chinese technology and Huawei in particular are actually much farther behind than Nvidia suggests and that therefore giving them the H20 is a big advance for them, not a small advance, and that that's a good reason why we shouldn't do it. Because it will enable them.
- [07:28]
C
The H20 or the H200?
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B
The 200, yeah, yeah. Because it will enable them to more quickly achieve their goal of independence from us, which is, I think, what everybody's agreed is their objective. And that gets to your third question because it does pose a dilemma for the Chinese and some people are saying this was clever of Trump to figure this out, you know, to dump this on the Chinese to figure out what to do. They are determined, clearly, to develop their own technology, their own chips and their own technology to manufacture the chips so they can be independent of Western technology.
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C
Right.
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B
That's been an objective for a dozen years. The dilemma for them is the H200, which a number of their big companies, Alibaba, Tencent, ByteDance, the owner of TikTok, all would like to have, because they think it's better. On the one hand, the Chinese will think that may slow down our independent development. You know, if they can get this good American chip, why do we want to spend a lot of time and money developing chips that may or may not be better?
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C
Exactly right.
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B
On the other hand, from the critics side, providing this chip may enable them to reach their goals faster. So that's a dilemma for China. So far, signals have not been clear. I mean, China has indicated, I think, that it's not just a question of U.S. export licenses. Companies are going to have to get Chinese permission to buy these, and it's not clear how broadly that permission is going to be granted. So this may end up being a case where the Chinese play into the hands of the US Critics and solve the problem by not buying any. At the same time, the critics, I think, despite my support for the general policy, the critics make a good point in this particular case, that it could end up being an enabling tool that will enable China to reach its own independence goals much faster.
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C
Yeah, I mean, there have been, you know, it's a lot of criticism over the past week since this announcement came down from the hawks and others. But there are a lot of big questions here. So, Scott, I want to get your take on all of this.
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A
Well, just a few things that I can add to what Ben Bill said, which is there's some subtlety to this, in part because Nvidia doesn't sell chips, they sell solutions. They sell, you know, masses of equipment that all works together. All right? And they're worried about their solutions business because they have, they have an edge at the moment. They ought to be building market share. And because of China's ambitions to be independent of the United States or of the west or of anybody else, they want their own technology. This is a tough situation for them. Add to that the pace of change in this industry. Okay. How fast the state of the art moves on. So it's not an easy decision. And I think there are subtleties on both sides. Both the export control side, both governments have to do and what the corporate champion here wants to do and is attempting to do while maintaining their status of shipping a dual use product that has national security implications. So tough decision. One final comment about why they may be soft pedaling it. Something a friend of mine who's made a living as a coffee trader pointed out. He said every time the US And China get together, there's another party at the table with the U.S. it's the ten year Treasury. And he pointed out in May and October, there was jitters in the bond market, the treasury bond market, that led to a sort of immediate sort of withdrawal of some of the harshest sanctions and a little peacemaking. And so given, given the state of the economy and the importance of the bond market, they're always at the negotiating table with the United States. They may be there now and that may be causing what Bill is sensing from his soundings around town as some dovish behavior.
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C
I want to get your perspective on the legal question as well. How do you think that that would play out, Scott?
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A
Well, I agree with Bill. There's no one who would have standing that could claim a harm if the company agrees to it. I think it's a little one step too cheesy for me. I think they ought to go ahead and make the export control decision and move on. I mean, I understand why. I mean, you've got a famous bond trader as the commerce secretary and he's looking at all these subsidy dollars go out and saying, hey, why there's no return here.
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C
Yeah.
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A
And so, you know, which he did for years at Canter Fitzgerald. So hats off to Secretary Ludnick for at least pointing out that the government is a stakeholder that might as well be a shareholder. But the laws don't work that way. And certainly there's I would make the right export decision.
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B
I wouldn't underestimate the creativity of American lawyers and their ability to find somebody somewhere who can credibly claim harm.
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A
Their feelings are hurt.
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B
Yeah, you never know, you know, plus, you know, this is America. Anybody could sue anybody for anything. It doesn't mean they're gonna win.
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C
That's what makes us great.
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A
We've learned a lot about district judges and their opinions.
- [12:24]
B
So a lot of billable hours wrapped up in this, that's for sure. I think if it ended up in court, if somebody could establish standing and demonstrate that they were harmed and the suit could go forward, then it would be an interesting question. You know, the constitutional question might be avoided because they technically don't come from here. Although it is an American company, the ECRA bans a fee on licenses. I think the administration could credibly argue this is not a fee, it's a royalty. This is a royalty. Thank you. And some other people would say doesn't make any difference what you call it. You know, if it walks like a duck and quacks like a duck and pays like a duck, it's a duck and not a royalty. But, you know, it'll be interesting to see how that plays out. It would not surprise me though, to see somebody somewhere filing a lawsuit if this deal actually gets done and the government starts collecting money.
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C
No, that wouldn't be surprising at all. But how successful it would be would be another question. All right, I want to turn now to the status of the US Indonesia trade deal. There was reporting last week that the deal, which was announced back in July, may be on the brink of collapse. But just days later, it seemed the deal was back on track to be completed perhaps by the end of the year. Scott, what's going on here and what's at stake?
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A
Well, I think there is a set of practices that we're becoming familiar with in the Trump administration that are unlike the past. That's one way to put it. And my. I have a lot of friends.
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B
You're being charitable again.
- [13:51]
A
At the U.S. trade Representative's office. Very fond of their commitment to making things work, work the way they're supposed to work. They're very devoted. There's two hundred and twenty people who do an amazing amount of work and they get things right so many times. They're a very impressive organization. One of the things they do is they render trade commitments, the promises that countries have made to each other, they render them to writing and get them polished. So everybody thinks what you think it means is what it means and what the counterparty thinks it means is what it means. We work very hard on these legal scrubs. Now, it used to be that you did the negotiation, you came to an agreement, you did the legal scrub and then you had the photo op. What we have in, in at least the Trump 47 administration is photo op first, then scrub. So I think it leads to problems like this. What we tend to send very senior people, including the President of the United States himself, to handle these negotiations.
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C
Right.
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A
We make top line agreements. We issue a press release, not a signed bilateral agreement. A press release.
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C
Yeah.
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A
Okay. In English. And we presume everybody agrees with what is said of that. And that's what we meant, which is not what happens in diplomacy or in, in trade negotiations. So it's not surprising to see this. It's also not surprising to see it with Indonesia, which Indonesia is first of all a very large country, very populous, complex place, but also a country that does not have the depth of engagement with other parties. They sort of skip the supply chain, part of development in East Asia and the Pacific, back when there were what we called Asian Tigers who were basically assemblers for the Japanese electronics and automotive companies. At least that's how it started. But the countries that, that were a factor in and generated lots of employment and lots of economic growth by supplying those Japanese cornerstone industries and then on into other cornerstone industries, got very accustomed to negotiations. They, they knew what the concessions that they made meant, they knew how the supply chains worked, and there was generally a sort of a path of least resistance they followed. Thailand would be a great example of a country that just became part of how they did business. The way they created employment and negotiations were quite familiar. Indonesia, on the other hand, says populous and fascinating place, but less engaged in those supply networks than other aseans. And so as a result, they don't have the history of negotiation. I didn't find it all that surprising that this came up. You have flyby from the US team, you issue a press release and you bug out. And in the meantime, somebody's left to figure out what it means. I think they'll get there, but this is politically sensitive. There are opposition parties who love to make news by criticizing the party in power for making the agreements with the Great Satan and moving on. So there's lots of those dynamics that are hard to avoid when you don't nail it down. Yeah, but that's the way we're doing business here.
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C
So, Bill, what's your take? And correct me if I'm wrong here, but I think the, the phrase we've used a lot over the past few weeks, poison pill clauses, is a little bit of factor here from the Indonesian side, is that correct?
- [17:24]
B
Yes. I mean, Scott's got it basically right. Although I would say in general, I think what we've predicted before is coming true. The edifices here are beginning to crumble. These things are not binding, not enforceable. They tend to be press releases. As Scott's photo op comment validates what we both said before, for Trump, the squeeze is more important than the juice. You know, getting the photo op is what matters. What's in the paper doesn't matter. In the Indonesian case, which is a little bit more extreme than others, their government, a day after the agreement was announced, said that their version of what they agreed to was not the same as Trump's version of what they agreed to. And labor, for example, the Indonesians said, well, they just ask us to adhere to our regulations, which we're already doing. They said the zero tariff commitment that Trump trumpeted was zero commitment for stuff that they don't make, which is a much more ambiguous definition of what's covered than the American definition. So this is what happens when you rush to the photo op. It doesn't surprise me. I'll get to poison pills in a second. Incidentally, the same thing is beginning to happen with the UK which has a much closer relationship with us. The United States has complained that they're not moving fast enough to implement their provisions of the agreement. And we've tacked on an additional one. We can play that they still have their digital services tax, even though that wasn't in the agreement. In fact, we commented at the time. I think Scott and I were both surprised it wasn't in the beginning in the agreement because it's. Getting rid of them has been a presidential priority. But now all of a sudden we're saying, well, they're not moving fast enough on it when we didn't ask them to do that in the first place. But if the UK one gets called into question, I think you can expect some of these other ones to have the same problem and an underlying issue less with the UK than with all of the Southeast Asian ones and maybe some of the Latin American ones. I was looking into that this morning, but didn't come to a clear conclusion. Are the poison pill provisions? At one level, these are kind of redundant because the threat is in the poison pill. If you don't do what you commit to do, the US can withdraw from the agreement. Well, they can withdraw from the agreement anyway.
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C
Sure.
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B
Particularly agreements that are non binding and non enforceable. There is nothing that prevents the US tomorrow from withdrawing for no reason. So.
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C
So why is that problematic domestically for a lot of.
- [20:02]
B
Problematic for them because it appears to commit them to take actions that they may in the future decide infringe on their sovereignty. The main one that appears in a lot of these, and it's in disguise because it doesn't mention China. But basically it means if you make a deal with somebody else, I. E. Somebody that we don't approve of, there's only one country that we're talking about here, Canada. I mean, there's North Korea, but nobody's concerned about that. If you make a deal with Somebody we don't approve of, then that's grounds for us withdrawing from this agreement, which the implication of that of course is then the tariffs go back up to what we said last April. That's the stick that actually has a meaning. Although, you know, under Trump, who doesn't pay a lot of attention to the niceties of legalities, he could do that at any time anyway. But so they agree to not do things we don't like. They agree not to enter into agreements with adversaries, basically. And there's also some areas in some of these agreements where they agree to do a bunch of market opening things in areas like pharmaceuticals, for example, and agriculture, which are effectively poison pills for those economies because they're politically very controversial. And telling the Indonesians they have to buy American rice is not a popular move in Indonesia. And so those are different from country to country because the political sensitivities are different from country to country. But they're in there. And some of these agreements, the Cambodian one is a good example, says they don't have to do these things or some of these things if they are an infringement on Cambodia's sovereignty, which is phrased in such a way that it leaves it to Cambodia to decide that and not the United States. But they don't all say it that way.
- [22:05]
A
Now, I know everybody's trying to head for the exits, but it sounds to me like it's time to get to work both in Congress and at the USTR's office to nail some of these things down. We just are creating problems that we know will happen.
- [22:20]
B
Well from the beginning, you know, the chlorinated chickens are coming home to roost. We said from the beginning, first there were three problems. One, the stuff that they thought they agreed to, but in fact the leaders of each country have a different version of what was agreed to. We're seeing that with Indonesia. The second one was stuff they punted and said, we'll come back and discuss this later. And so later is arriving now. And the third is where like the UK DST where one side or the other comes back for a second bite. So in the Indonesian case, they're coming back and saying, well, I know we said this, but we can't do that. So we need to review the agreement. In the UK case, the United States is saying, you know, you said you were going to do this and you haven't done it yet. And this is going to be a permanent negotiation. I mean, these things are just going to go on and on and on.
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C
Portends a messy 2026, perhaps.
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B
Well, it's good news for the podcast. We can go on and on and on. There's a boatload of stuff to talk about.
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A
We won't be shy of topics, that's for sure.
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C
That's right. Well, I was, I was going to say, speaking of heading to the exits, we have one final segment of 2025, and we're going to end on something a little lighter today. As we've seen this year, not even the most remote corners of the world have been spared from tariffs, including the North Pole, or at least Svalbard, a remote Norwegian territory that serves as the world's northernmost settlement. So close enough to the North Pole for this discussion at least. Following Liberation Day, Svalbard's exports became subject to 10% levies. And for context, as we get into this, Svalbard has a human population of 2,500 and at some points in the year, a polar bear population of 3,000. So, Bill, why in the world is Fallbard subjected to tariffs and can we expect any impact on North Pole exports this year?
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B
Well, this is potentially a big problem for Santa.
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C
Yeah, this is gonna be.
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B
And I think we have to, you know, children everywhere need to be concerned about that. I mean, there's a boatload of, well, actually a sleigh load of issues here. First of all, for those 3,000 polar bears, reindeer are dinner. And so one thing to think about is, you know, is Santa going to be able to get the sleigh off the ground? You know, the advice they give you Svalbard residents give out is if you're walking around, have a gun. You know, polar bear sightings can be frequent and unexpected.
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C
You're outnumbered.
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A
It reminds me of a famous, one of the famous Gary Larson Far side cartoons. It shows an igloo with the top ripped off, you know, jagged edges on the, on the ice, on the top of the igloo. And there are two very satiated polar bears with their backs against the, the igloo. And one of them says to the other, said, you know, I love these things. They're crunchy on the outside and soft and chewy on the inside.
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B
Well, the polar bear's traditional diet is seal, probably sea lion if they're any that far north. But climate change, which is melting the ice, is reducing their habitat and among other things, forcing them to spend more time on land. And if they spend more time on land, it means they have to forage for a land based thing. So we're back to Santa's reindeer. So that's One problem. The second problem, of course, is the 10% tariff. Now, as Scott has pointed out before we started talking today, that actually Santa was probably the world's biggest beneficiary of the de minimis requirement, which lets stuff less than $800 into the country tariff free. All those little boxes, he doesn't have that anymore.
- [25:55]
A
You didn't care where they came from. You didn't have to fill out a form on them, you know.
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B
Exactly.
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A
And so they just got to little Susie or little Sam.
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B
And so now we have an ELF problem because Sattan needs accountants, Sattn needs accountants, and he needs custom brokers and freight forwarders to make sure that all the relevant duties are paid and that the accounts are all kept properly. That creates the potential of a labor shortage, an ELF shortage in Svalbard, which then raises the immigration issue for Norway, which is the custodian of Salvard. So there's a host of those unanswered questions there too. The other thing to note, just as a side factoid, is Salvard is the northernmost settlement in the world and a pretty isolated place, but it also happens to be the place of the global seed depository.
- [26:44]
C
This is important.
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B
This is actually very, very important. What the nations of the world decided quite a long time ago was that in the event of some cataclysmic disaster or apocalyptic disaster, we ought to be storing seeds somewhere so that if there are survivors after the disaster, they can go take them out. We can start agriculture all over again. So there is actually a giant cave. I guess it's a cave. I've never been there. In Svalbard, in which nations of the world have been depositing seeds for years.
- [27:18]
C
That's right.
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B
So it actually is a critical. From a national security or global security standpoint, it actually is a critical place, which may mean that the Russians have designs on it or the Chinese have designs on it. You may have read just last week or the week before, the first large ship, commercial ship, transited the Arctic and landed at a British port coming from. From China.
- [27:44]
C
Yeah.
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B
This is also global warming. But it's a sign of things to come that they saved 20 days off of going through the Suez Canal that way. And so you're going to see a lot more of that. And that takes them, I believe, right past Falbard.
- [27:58]
C
It does. We've had a couple of teams at CSIS who've looked at this over the past year or two. It's. It's something definitely worth exploring. They interviewed Santa I. Yeah, but he. He didn't want to go on the record.
- [28:10]
A
Okay, well, you know, look, anytime that there's talk in Washington about Santa, I think back to PJ o', Rourke, great humorist and a wonderful political commentator. He was contrasting political liberals to political conservatives by contrasting Santa Claus and God. So I dug up his quote, which is God is a rather elderly and usually male stern fellow, patriarchal rather than paternal and a great believer in rules and regulations. He holds people strictly accountable for their actions. He's politically connected, socially powerful, and holds a mortgage on literally everything in the world. God's difficult. He's unsentimental. It's very hard to get into God's heavenly country club. Now, Santa Claus, that's another matter entirely. He's cute, he's non threatening, he's always cheerful. He loves animals. He maybe knows who's naughty and who's been nice, but he never does anything about it. He gives everyone everything they want without a thought of a quid pro quo. In fact, Santa Claus is preferable to God in every way but one, which is there is no such thing as Santa Claus. Thank you, P.J. merry Christmas.
- [29:21]
B
And now you've just destroyed the dreams of all of our listeners under 7 years old.
- [29:26]
C
I cannot wait to share this segment with my 6 year old and my 4 year old on Christmas Eve. Instead of reading Twas the Night before Christmas, I'm gonna have Bill and Scott give them an update on this and wise words from P.J.
- [29:39]
B
O' Rourke and destroy their dream.
- [29:41]
C
Yes, well, it's going to be a shattered youth. Well, Bill and Scott, we're going to leave it there. And I want to wish both of you happy holidays. And to all of our listeners, thanks as always for listening. We hope everybody has a nice holiday break and a very happy new year. And we're going to see you back here in January 2026 and we'll tell.
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B
You then what's going to happen in 2026. We'll have a forecast edition coming up soon.
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C
That's right. Stay tuned. Take care, everybody.
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B
Bye bye.
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C
You've been listening to the Tray guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks.
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B
For tuning in, Sam.