Bill Bishop on why selling H20 chips to China is strategically naive despite Jensen Huang's lobbying wins

of the stream since we already did the debate. We have Bill Bishop from Citizen. How you doing? Good. How are How are you? Thanks for having me. Thanks for hopping on. We really appreciate you taking the time. Um, give us uh I mean I'm super familiar with your work.

I think everyone should be, but uh g give us the high level of the push back that you saw yesterday. We enjoyed having you in the comments. Uh uh and uh I I want to know how you would frame the counterargument to what uh Aaron Gin was making yesterday. Great.

Well, thanks for having me and I I'm impressed that you guys respond to jerk comments. That's good. I don't see it as a jerk comment. Well, yeah, we don't see it. I think it's extremely fair push back. We understand when when I have Aaron G on, I see it as having Jensen Wong on the show.

That that is that is how I see it, too. So, that's great. Exactly. And and and I I can't have I I can't have Jensen come and whiteboard out pros and cons with me and I can't throw random jokes at Jensen all day long, but I can to Aaron.

Uh and so I enjoy uh having him sit there and I can throw stuff at him and of course he has he has his uh his opinions and his his arguments. Um, but it's great to have somebody that can speak the language of Nvidia. So fluid. Yeah. No, and I again I I think um, thanks for having me.

I'm psyched to see you guys on Substack 2, which is great. Um, and uh, I see you're running a show today. You got two great guests, Jimmy Goodrich and Leonard, who are going to be way better on the on sort of this discussion.

And so I think that um what I would say is what's been interesting to to watch and and I think talking about the the reversal on the H20 trip. We got a H20 chip from Nvidia. We got to remember right the there was a proposal teed up for the Biden folks to ban the H20 and they never did it for whatever reason.

Trump comes in actually bans it. So it looks like he's being more hawkish and then a couple months later because of really effective lobbying from Nvidia and specifically from Jensen Hong at the principal level at the you know to the president to David.

I mean, it's not even it's not even traditional lobbying because they're only they're spending like a million dollar seven figures on lobby probably 10 times that on Jensen Wong's like flight schedule flight school, right? No, it's it's brilliant.

They they sort of, you know, disrupt the lobbying business, go right to the decider, go direct and and how the narrative is shifted and so so Trump on the one hand looked like he was tough on China, then he backs off and then of course he gets a bunch of flack for oh my god, he's caving to China, he's caving to Jensen, right?

when when in fact he he sort of did what Biden didn't do and then because of this personal interaction and the personal effort from Jensen Wong he reversed course and I think it has to be seen in the context of the broader where I think there was a correct decision the recision of the AI diffusion rule right which was really you know David Saxs was I think a big uh advocate of getting rid of that rule with a bid administration rule that was going to limit countries that could buy Nvidia GPUs right the idea that the US needs to lead the US needs to out there competing with China, not just limiting.

And the way to do that is to get people hooked on US, the US AI stack, specifically Nvidia, uh, globally, exchina, that makes a lot of sense. The China decision on H20, I think, is flawed.

The idea that, oh, we're going to keep China hooked on Nvidia by selling them H20, and then I think, you know, the Jensen Hong is lobbying to sell sort of the next somewhat nerfed chip, right? a little better but but still not near the the top of the Nvidia um product suite.

The idea that just Nvidia is better, CUDA is better than the Chinese the Chinese hyperscalers, the you know the the the Alibaba, Tencent, Bite Dance, uh DeepSeek, they're going to want to stay with Nvidia makes sense in a world that is sort of a normal political economy, a normal competitive world.

doesn't make sense in the context of a world or or market that's run by the Chinese com you know the communist party of China and Xiinping made very clear in April at this polio study session that was about AI specifically said he wants China to build its own indigenous AI stack and so they understand very well this idea that you know Nvidia wants to hook their companies on Nvidia hardware the party wants self-reliance and so this idea that we need to compete America needs to compete by selling into China and therefore they're addicted they won't break it.

That I think is fundamentally naive and misunderstands how the party operates. I think what it does is it helps China fill the gap between where they are now in terms of lagging capabilities and lagging um output or quantities in terms of the Huawei chips.

It gets them to where they need to be over time, but they're going to be only intensifying their efforts to strip out Nvidia to to break any reliance on the US AI tech stock.

And so by selling H20 chips now, we're just helping China keep in the race when in fact if they didn't weren't able to get H20s, it would probably, I think, would help the US at least maintain a lead, if not start accelerating into and accelerating some amount of separation.

What what's your reaction to uh the commentary showing that the the CCP is actually like actively pushing back against uh Deepseek which is you know the clear open-source or or maybe not totally clear but an open source is also very an open source leader but yeah your your reaction to the news that the that Beijing asked LA found Chinese foundation labs to not buy Nvidia even effectively even if it means delaying paying like deep cards too.

So, there was a Financial Times report yesterday where it said they were encouraged.

We we'd love to know what what the encouragement really was, but yes, they were encouraged to use the Huawei I think it was the um the latest ascend chips um which were all based on dies that were illegally fabbed at TSMC where um Huawei used a cutout company that was related to Bitmain called SoftGo to get I think it was 2 million dies from TSMC that they can't make on their own in China.

Um, and even then they're still not where they need to be. And so I think that this goes you you have that news. You have the news since the announcement by the Trump administration that they were going to allow again allow licenses or or give licenses to sell H20 to China.

You've had significant push back from some of the regulators in China. You've had talk about the chips are unsafe. Maybe they have back doors. They're environmentally unfriendly. There's security risks.

Um, and so I think what you're seeing, you know, there's different hypotheses about what's going on on the on the push back on the H20. It's maybe they're trying to negotiate for the better chip.

Um, I personally think it's actually more of a manifestation of parts of the system really just are like we need to stop this reliance on American chips. We need to make sure we're focused on building our own pathway to self-reliance.

And that in I think is related to that news that DeepS is being encouraged to use the lesser chip even if it delays them because ultimately when they figure out how to use them and you know the report said Huawei has engineers on site trying to work through it ultimately that will help China because that will help them solve over time the various bottlenecks they're facing.

But I think you can read into it and and one way you can read into it is that the CCP doesn't believe in the sort of fast takeoff scenario, you know, like runaway AI in the next, you know, two years, right? Which I think broadly I don't know a lot of people that still believe in that, but it's notable.

No, I I think that I think that's right. I think this is more of a we're going to we are going to set the foundation for doing it in a self-reliant way, even if it takes us longer.

And so that's where I think what's been interesting to watch in Nvidia is how the narratives have shifted in DC where the Nvidia line of we have to compete, we have to compete, we have to sell them the China, we have to addict them is basically everywhere now. There's just like there's barely any push back.

Um and certainly in the government from my what I'm understanding there's no longer any process, right? Back to the whole sort of how did Jensen lobby to get decision made. There's no process there. No, there no like all the many of the people who worked on these issues were fired.

Um and and now it's basically like he gets to the principles, he gets to Lutnik or Sachs or the president and that's the decision. There's no like national security discussions. There's no process anymore. Yeah.

It feels like interestingly people often project uh like a monolithic culture upon China but then severe division within America.

And it feels like there might be some division uh on both sides in the sense that in America there are arguments for let's export all the GPUs, keep them dependent on us versus let's let's hold it back and and and hurt their ability to scale. And then in China they might be saying the same thing.

Hey, we need to just buy by by buy and stay near the frontier. This will actually help us accelerate.

And then there'll be a different argument for for maybe maybe we need to just There's also the the you know in in many ways Deepseek the original you know Deepseek release was was in some ways economic warfare on on Nvidia, right?

You saw this massive selloff immediately and well and there and there was clearly a somewhat of a coordinated hype. Yeah. I mean the app store the app store chart you know DeepC getting all these downloads was completely Twitter bots Twitter trolls. Yeah.

And so and so I think there's you could also read into this and think uh Beijing doesn't think that the next Deep Seek release regardless of how much progress they make around efficiency will have the same effect on you know making Nvidia sell off you know. Yeah. Massively.

Do you have any uh do you have any context on previous uh technological revolutions and and the history of the USChina relations like going back to uh like the cloud or mobile? Like was there ever any similar considerations of of don't sell iPhones?

It felt like in the previous era every big tech CEO was like I'm going to massively TAM expand by getting into China and then they got blocked.

And this is kind of the opposite where Jensen's been playing that and then now he's having to pull back and the government's like like the US government's the one that's saying don't sell to China whereas in the past with Uber and Google and Facebook it's been the Chinese government that's saying don't come here with your technology.

I I think this is this is fairly unique as far as I in my memory. Certainly with this sort of important technology, there have been certain types of things that the US government hasn't allowed to be sold into China, but not at the scale or the sort of the economic importance um or the frankly the market cap importance.

Zooming out, how how do you feel like USChina relations are just going generally? I feel like two years ago there was a ton of saber rattling about we need to get sharp on Taiwan. Everyone needs to learn what TSMC is.

uh we need to talk about defense technology and Taiwan invasion in you know six months 12 months it's happening it's gonna happen and then it feels like we've been in a bit of a lull a little bit more economic uh you know uh economic warfare but it feels like we might be coming out of a period of high tensions just give me like the general pulse check from your side it's a great question and it's one that it's still um it's still quite unclear I think that you see uh the beginning of the Trump administration, the economic tensions rose pretty high.

Those have come back down to, you know, where there's now a sort of a a tariffs are high, but there's a it's calmer.

Although the Chinese in part it's calmer, I think, because the Chinese pulled out their export control um trump card, so to speak, around rare earths and rare earth magnets and and really, I think, showed the US that they had actually a lot of leverage that that the US didn't necessarily appreciate.

Um and so I think you're in a bit of a lull on the US side because there are things like for for example on the technology stuff you know there were a bunch of new actions around um export controls around chip related stuff they're all tabled right in part I think because of how um the Chinese were able to push back on the uh initially the beginning of the of the sort of the trade war using their their rare earth's uh card.

Um generally though when you look at uh the the broader you know you look at Taiwan you look at um sort of things like the South China Sea you know the the you look at the other economic issues around you know what the US over capac says over capacity the the structural issues are not going away we are I think as you said it we're in a bit of a lull and the Trump administration seems to be more focused on um the the transactional bit parts of the relationship for now.

Um, but you know, there's some people who want to talk about, oh, maybe there'll be this grand bargain. You know, Trump and she may meet this fall and they'll have some great grand bargain.

Um, you know, it it's hard to see how that would happen and how it would be sustainable just because of the the real structural issues and relationship, but there's no question that the narratives have been shifting. The Chinese have been working really hard on peopleto-people sort of Yeah.

uh stuff that has I think pulled us back from the sort of peak of China hawkish. I said, you know, my Sharp China podcast last last fall at the beginning of the year. I just we were joking. I said, you know, I think we've hit peak China hawk, right? No, seriously. Right.

It's going to it's going to it's going to it's going to sort of moderate at least for the time being. I think that's what we're seeing. Is the rare earth element stuff uh a an ace in in the deck of cards or is it more like a jack or a queen?

I think about, you know, we haven't even gotten to the obviously Tai Taiwan invasion feels like more of the ace um in terms of just like how much pressure that would put on the relationship.

But also Apple, it feels like if China were to put pressure on Apple, that would potentially be more disruptive to the American economy just because it's such a huge company. It's so critical to American technology than uh than rare earths. Or is there some other dynamic at play there?

I think the Chinese have, you know, Apple is one of those companies that every time there tensions it comes up, well, China could do something to Apple. And they have, you know, Tim Cook has been brilliant at managing President Trump and brilliant at managing Xiinping.

And you know, Apple, there was a great book that was written about Apple by Patrick McGee. I mean, Apple has does a lot for the Chinese economy. They employ a lot of people directly and indirectly. The Chinese so far have not really bothered them in any direct way.

Um the rare earth is one where they have the ability to uh effectively disrupt significant parts of US industry and European industry and they did that and and that I think is why you see you saw the US sort of pull back pretty quickly in the in the in the trade discussions and you know the way the US did it is after the first meeting in where was it?

It was in um [ __ ] it was London, Geneva at the first meeting. All of a sudden the US added these new export controls on like jet engines and and other things because the Chinese weren't giving the rare earth magnets that the US thought they were. Um that that is the one where the Chinese can cause pain immediately.

Yeah. Yeah. Yeah. So with Apple, if China does anything to Apple, that's like ma million people unemployed in China. Very disruptive to the Chinese economy. Whereas with rare earths, like you could stockpile them.

You could it's not as critical of like a labor market in China other markets if they can't sell to us it it it's basically it hurts the couple like one or two stateowned companies effectively. Got it. Got it. So So it truly is more leverage for them.

But but it's but it's the card that you can only play for a certain period of time and if the US government and allies get serious about solving that bottleneck it can get solved. The problem is maybe the Trump administration now is serious. This is not an this was not an unknown issue.

The Chinese threatened this in the first Trump administration. The Trump administration then we had co nothing really happened. B administration admired the problem, wrote some papers, had some meetings, didn't fix it. Now maybe there's the urgency to actually address it. Yep, that makes sense.

Last question from my side. What is uh general sentiment from uh on the ground in China or what's your read on sentiment among business leaders today? Um not being there, that's a harder question to answer.

But when you look at some of the data and the surveys, you know, you look at like some of the multinationals, I think there is uh the the the surveys from various foreign chambers of commerce tend to be generally pretty pessimistic, more pessimistic than they've been in years.

Um when you look at some of the surveys around Chinese business confidence, it is um maybe bottomed um not particularly um positive. Certainly there are pockets that are positive.

You we talk about the deepseek moment that has had a real catalytic effect on certain tech sectors and you certainly see in the Chinese stock market Chinese stock market's up pretty big this year you know things like AI stocks are up AI concept stocks are up big some of the chip stocks are up big you know the the the H20 news and the and the fact that the Chinese maybe not want the H20s was good for some of the domestic uh chip companies so in those sectors you know you look at robotics I think they're feeling quite confident because both the markets there and then they've got massive government support so it's a mixed bag.

Well, thank you so much for hopping on. We are going to jump on with Jimmy Goodrich. Uh but we'd love to have you back. I mean, this was a long time. Thank you. Anytime. Also, if you're ever in the chat and you and you have a comment you want to you want to extrapolate on, we'll just drop you.

You just join the same link that you have. Really, you can join us. We got it live. So, anytime you do it, we'd love to see you. Cheers. Have a good weekend. Cheers, everyone. Have a good weekend. Cheers. Let me tell you about Finn.

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