Tech company Nvidia is reeling from the Trump administration’s decision to further restrict its capacity to export graphics processing unit (GPU) chips to China. Until now, the country’s H20 chip — a less advanced version of Nvidia’s higher-end AI chips — was exempt from sanctions. Now that the White House has cracked down, the chipmaker is scrambling to figure out a way to continue doing business with Beijing.

Nvidia CEO Jensen Huang travelled to Beijing this week at the invitation of the China Council for the Promotion of International Trade, a government-affiliated group, which aims to facilitate Sino-American business relations. Nvidia has said that the new restrictions will cost the company around $5.5 billion in income, amounting to roughly 9% of its 2024 revenue.

Following the announcement, Nvidia’s stock price has fallen, and is now down almost 25% from its value at the start of the year. The company had already been struggling after the January release of the Chinese-developed DeepSeek-R1 AI model, which uses far fewer GPU chips than previous models and so has dented projected future sales for Nvidia.

The H20 ban is related to the DeepSeek saga. Lawmakers in DC now appear to be trying to place the blame on Nvidia for the development of DeepSeek’s new model, claiming that China has been surreptitiously buying GPUs from the chipmaker. This narrative has taken hold among those in Washington who wish to downplay the importance of developments in the Chinese AI market. After all, if Beijing didn’t really build a superior model and instead cheated to buy restricted chips before lying about how efficient the model was to cover this up, then lawmakers can still believe that the United States has a world-leading AI industry.

Ironically, this American retreat into fantasy may simply hasten the decline of the US position within the global AI industry. With reduced revenue, Nvidia will have less money to invest in world-leading GPU technology. Meanwhile, the sanctions themselves will encourage the Chinese to develop their own domestic GPUs — much in the same way that previous chip sanctions led them to develop their own chipset for their Huawei smartphones.

Outside of the market for GPUs, Donald Trump’s trade war is starting to bite. Reports from freight companies suggest that American imports from China fell 64% last week, while exports to China fell 36%. American logistics companies are already seeing their stock prices fall as trade starts to dry up. JB Hunt Transport Services’ stock is down 25% since the start of the year. Most analysts expect this to have serious inflationary consequences for the United States in the near future, just as trade seizing up did after the beginning of the Covid-19 pandemic in 2020.

All the while, China is capitalising from the chaos caused by America’s trade war. Chinese President Xi Jinping made Southeast Asia the destination of his first overseas trip this year. On the trip earlier this month, Xi promoted the idea of an “Asian family” and called for regional unity in the face of what he portrayed as US pressure. “China and Malaysia will stand with countries in the region to combat the undercurrents of geopolitical and bloc-based confrontation,” the Chinese President said in Putrajaya, Malaysia, “Together we will safeguard the bright prospects of our Asian family.”

It is becoming increasingly unclear what the Trump trade war is designed to achieve. It is now widely appreciated that sanctions on technology merely bolster the Chinese domestic industry and lead to a decline in the relative importance of America’s industry. This course of action will cause inflation, arguably the very phenomenon that destroyed Joe Biden’s presidency. And it appears to be significantly increasing the power and prestige of the Chinese — first in the Asia-Pacific region, and soon possibly in Europe. By the time the impact of the trade war becomes clear, it may be too late for DC to turn the ship around.

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Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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