"The biggest deal anybody has ever seen," President Trump said of his just-signed U.S.-China trade deal almost exactly five years ago. It turned out to be a nothingburger. Yet that same boast would be an understatement for the TikTok-for-Trump tariffs deal that he's put on the table to open his second presidency.
Though TikTok is the immediate prize eyed by Trump, Oracle, Microsoft and others, it's a shiny bauble diverting attention from the elephant in the room: the profound fracturing of U.S.-China relations that came as President Biden launched an all-out effort to block China's technological advancement. Even Trump tariffs are a sideshow.
Whether Trump aggressively counteracts Beijing's artificial intelligence ambitions — by leaning into export controls denying China access to artificial intelligence-enabling chips and chipmaking equipment — will likely be the most consequential decision of his second term.
Be forewarned: If the dealmaker-in-chief doesn't strike a monumental U.S.-China deal, get ready for Trump, Cold War commander in chief, overseeing a no-holds-barred battle for AI supremacy. Which of the two distinct paths Trump chooses will have major implications for Nvidia, Meta Platforms, all the other Magnificent Seven stocks and, of course, Taiwan Semiconductor, which makes the chips on which America's AI leadership depends.
After Chinese startup DeepSeek shattered the presumption of U.S. dominance in AI, there may be a greater likelihood that Trump takes a hard line.
U.S.-China 'Grand Bargain'
Trump's election victory may have revived the possibility of a U.S.-China "grand bargain," Chinese stock ETF specialist KraneShares observed recently. The firm highlighted a series of postelection signals that Trump is taking a "conciliatory, 'Art of the Deal' approach to China." They include Trump talking himself down to a new 10% tariff on Chinese imports, after threatening 60% during the campaign.
But then came DeepSeek's "wake-up call," as Trump put it, sowing doubt about U.S. leadership in AI. In the first hint that Trump might assume a more contentious posture, Bloomberg News reported that his administration may restrict exports of Nvidia's older H20 chips, which DeepSeek credits with helping its AI chatbot match wits with OpenAI's ChatGPT at a fraction of the cost.
TikTok For Tariffs — Or AI Chips
As the clock ticks down to Trump's April 5 deadline for avoiding a TikTok ban, another clock is ticking. "The largest salvo in the new technology cold war" is set to hit May 15, say SemiAnalysis founder Dylan Patel and co-authors. That's 120 days after the departing Biden administration put forth a sweeping rule to turn less-than-effective curbs on the sale of advanced AI chips to China into an impermeable web.
The TikTok deal framework Trump has sketched out — the U.S. will go easy on new tariffs if President Xi Jinping agrees to cede control of ByteDance's U.S. operations — only scratches the surface of what's really on the table. U.S. chip export controls will ultimately be key to any significant deal. Before signing off on a TikTok sale, Xi will want to know if Trump intends to move ahead with Biden's dramatic escalation of AI chip export restrictions to block China from rivaling — if not overtaking — the U.S.
DeepSeek's Deep Impact
As Trump pledges to make sure the U.S. is "the world capital of artificial intelligence," it suddenly seems possible that the capital could wind up, not in Silicon Valley, but in Hangzhou, home to both DeepSeek and tech giant Alibaba.
DeepSeek's economical approach has fueled concern about whether U.S. companies' massive AI infrastructure investments will pay off, triggering the Jan. 27 sell-off that cut Nvidia's market value by nearly $600 billion. Two days later, Alibaba unveiled its own new AI model, claiming to outperform Meta, OpenAI, Anthropic and DeepSeek across a range of industry benchmarks.
China's growing AI prowess was behind the heavy-handed global licensing regime advanced by the Biden administration in its final week. The Framework for Artificial Intelligence Diffusion aims to deny China the massive computational resources needed to build the most advanced AI models, which might be used to optimize the military tactics in real-time or power hard-to-deter cyberattacks.
"The government believes that AI (will) determine whether U.S. hegemony persists or if it is ceded to China" and that the outcome will hinge on whether sufficient steps are taken "over the next few years" to disrupt China's progress, SemiAnalysis said in a Jan. 15 analysis.
How DeepSeek Turned Views On U.S.-China AI Rivalry Upside Down
'Trump May Not Follow Through' On Latest AI Chip Rules
Yet what "the government believes" after the transition in power is no longer evident. Trump has kept everybody guessing. Secretary of State Marco Rubio and National Security Advisor Michael Waltz are China hawks. Yet Trump has been hanging around tech billionaires like Tesla CEO Elon Musk and Oracle Chairman Larry Ellison. Their interests lie in a less combative approach.
"Why do we think Trump may not follow through?" Jefferies global semiconductor analysts led by Edison Lee wrote on Jan. 10, as details of the AI diffusion rules emerged. "Trump's international policy is based around tariffs," they wrote. Biden's chip control regime "would not generate more revenue for the U.S. government, one of Trump's key objectives."
The first Trump administration dabbled with export restrictions, targeting Chinese giants Huawei and ZTE Group. Yet Trump held out those restrictions as leverage to exact better terms in a trade deal. In May 2018, he posted that he was working with Xi to get ZTE "back into business, fast," despite its sales to Iran and North Korea that defied U.S. sanctions.
Trump defended letting ZTE off the hook, citing his "personal relationship" with Xi and the fact it "buys a big percentage of individual parts from U.S. companies."
Given that history and Trump's eagerness to avert a TikTok ban, it's very much in doubt whether he'll sign off on Biden's last-minute restrictions, which much of the U.S. tech sector hates.
"We are likely handing most of the global AI and GPU market to our Chinese competitors," Oracle warned. Two weeks later, Ellison joined Trump to kick off its $500 billion Stargate AI infrastructure venture with OpenAI and SoftBank.
However, after DeepSeek's AI achievements rocked Wall Street and Washington, Jefferies analyst Lee has had second thoughts: "We are now less ure how much Trump's team would relax the AI Diffusion policy," he wrote on Feb. 9.
Biden's AI Chip Export Tiers
| Tier 1 | Tier 2 (partial list) | Tier 3 |
|---|---|---|
| Australia | Angola | Afghanistan |
| Canada | Austria | Belarus |
| Denmark | Brazil | Burma |
| Finland | Czech Republic | Cambodia |
| France | Greece | Central African Republic |
| Germany | India | China |
| Ireland | Indonesia | Congo |
| Italy | Israel | Cuba |
| Japan | Kenya | Eritrea |
| Netherlands | Luxembourg | Haiti |
| New Zealand | Malaysia | Iran |
| Norway | Mexico | Iraq |
| Republic of Korea | Monaco | Lebanon |
| Spain | Nigeria | Libya |
| Sweden | Poland | Macau |
| Taiwan | Portugal | Nicaragua |
| United Kingdom | Romania | North Korea |
| United States | Saudi Arabia | Russia |
| Singapore | Somalia | |
| South Africa | South Sudan | |
| Switzerland | Sudan | |
| Thailand | Syria | |
| Turkey | Venezuela | |
| United Arab Emirates | Zimbabwe |
Source: SemiAnalysis
The final Biden administration export controls limit access to advanced AI chips for all countries except the U.S. and 18 major allies and security partners. China and other Tier 3 countries face an outright ban. Tier 2 countries, including India and Singapore, would face major constraints in what they can buy, along with intensive reporting requirements.
The rationale is that AI chip exports to Tier 2 countries are likely powering China's AI efforts. Some chips get smuggled into China. Others go into AI data centers that Chinese companies can tap into. As an example, The Information reported that ByteDance planned to spend $7 billion on Nvidia AI chip access this year. TikTok's owner was arranging with data center operators in Southeast Asia to rent out Nvidia's next-generation Blackwell chip as it becomes available.
In a Wall Street Journal op-ed, Anthropic CEO Dario Amodei and Matt Pottinger, deputy national security advisor in Trump's first term, shot down the contention that Biden's final AI rule would drive international customers into China's arms. "China's best AI chips, the Huawei Ascend series, are substantially less capable" than Nvidia's, they wrote. Further, China appears ill-equipped to export chips at a meaningful scale as it struggles with U.S. restrictions on chipmaking equipment.
SemiAnalysis says the AI diffusion rule "reduces GPU access for China," making it negative for Nvidia in the medium term. However, "ultimately it may not meaningfully constrain shipments of AI chips in aggregate," Patel writes. He expects firms to adjust by adding extra data-center capacity in Tier 1 countries and working with major U.S. hyperscalers operating overseas.
AI Chips: White House Faces Delicate Balancing Act
DeepSeek: The Upshot For AI Chip Export Bans?
The argument against the latest AI export controls has shifted since DeepSeek's sudden emergence. Limited chip availability has pushed Chinese companies to the forefront in finding more efficient ways to train and run AI models, Jefferies' Lee noted. Trump and Musk will "likely recognize the risk of further restrictions is to force China to innovate faster," Lee anticipates.
Yet others completely reject the notion that the chip controls are a net positive for China. Miles Brundage, former head of policy research at OpenAI, told the ChinaTalk podcast that export controls may have led DeepSeek to a lower-cost solution. But "the overall impact has been slowing China's ability to scale up AI generally, as well as specific capabilities that originally motivated the policy around military use."
"DeepSeek would be even more effective with more computing," wrote Stratechery's Ben Thompson.
Further, the AI chip restrictions introduced in October 2022 will bite more over time. DeepSeek says it trained its breakthrough AI model using 2,000 H800 chips that Nvidia designed to comply with the original export controls. Biden eventually banned H800 exports in late 2023. The advantage for U.S. AI companies will widen further with access to Nvidia's Blackwell graphics processing unit — if Chinese companies can't find a way around the export controls.
Two U.S.-China Scenarios
Trump's actions "will help determine whether democracies or autocracies lead the next technological era," Anthropic's Amodei and Pottinger wrote. "Our shared security, prosperity and freedoms hang in the balance."
Writing on his own website, Amodei handicapped the U.S.-China battle to train AI models that surpass human intelligence, enabling rapid advances in science and technology. Getting there "will require millions of chips, tens of billions of dollars (at least), and is most likely to happen in 2026-2027."
Denying China the millions of chips it needs will give the U.S. and its allies a shot at "a long-lasting lead on the global stage," he wrote. Otherwise, China will achieve parity with the U.S. in AI and emerge with unrivaled power.
"China could direct more talent, capital, and focus to military applications of the technology," Amodei wrote. "Combined with its large industrial base and military-strategic advantages," Beijing would exert its will.
Trump Tariffs: Big Launch Date Delayed
U.S.-China Chip War Still Centers On Taiwan
The U.S. race to build advanced chip manufacturing with the help of $100 billion in CHIPS Act funding will start to pay off in 2025. Taiwan Semiconductor will begin producing Nvidia's Blackwell AI chip at its new Arizona plant, which began construction in 2021. The chips, however, will have to be shipped back to Taiwan for advanced packaging.
Defending Taiwan, which makes the vast majority of the world's most advanced chips — but can't make them for China — has only grown in importance in the AI age. Yet the U.S. position has become more precarious as Chinese military maneuvers in the Taiwan Straits have grown more aggressive.
Military support for Ukraine and Israel cut into U.S. munitions stocks. China's jamming capabilities could interfere with U.S. targeting efforts, the Defense Intelligence Agency has warned. And China leads in hypersonic missiles that can evade missile defenses.
When the Pentagon unveiled its Replicator program in August 2023 to deploy thousands of AI-powered drones able to swarm enemy forces, officials made no secret that its mission was to "overcome the PRC's (People's Republic of China's) biggest advantage, which is mass: more ships, more missiles, more people."
Biden was the first U.S. president to explicitly promise to repel an incursion against Taiwan by China. Trump has so far avoided such a declaration. In October, he told The Wall Street Journal that he wouldn't need to use military force because Xi "respects me and knows I'm (expletive) crazy."
He added: "I would say: If you go into Taiwan, I'm sorry to do this, I'm going to tax you, at 150% to 200%."
Trump's TikTok Rescue
In KraneShares' view, Trump's effort to preempt the TikTok ban ordered by Congress has been among a series of conciliatory signals toward China. Xi got an invitation to the inauguration, though he sent his vice president. Trump and Musk defeated an end-of-the-year budget provision restricting Americans' advanced technology investments in China. And new Trump tariffs targeting Mexico and Canada, though delayed for a month, are far higher than those aimed at China.
Trump's TikTok executive order on Jan. 20 granted a 75-day reprieve "to pursue a resolution that protects national security while saving a platform used by 170 million Americans."
Now Trump is overseeing "a bidding war" that could win him the gratitude of younger voters and may even land the U.S. an ownership stake. A range of potential bidders have emerged, including Microsoft and Oracle. Musk, who owns the social site X, also is seen as a potential buyer.
The size of the deal will depend on whether it includes TikTok's proprietary algorithm that tailors content to each user. That, in turn, depends on whether ByteDance retains control. A deal selling a 20% stake to Oracle and Walmart in 2020 collapsed when Trump rejected an ongoing ByteDance role. This time he's even floated the idea of a 50-50 joint venture between TikTok's parent and the U.S. government.
Without the algorithm, TikTok's value would take a big hit, opening the door for Meta's Instagram, Snap unit Snapchat and others to try and win over users.
Trump has said he's ready to take action if Beijing stands in the way of a deal. "We have one very big power over China, and that's tariffs," Trump told Fox News on Jan. 23.
China Tariffs Less Of A Trump Card
Yet tariffs may not be quite the hammer that Trump imagines. China's exports to the U.S. have fallen over 20% in nominal terms since 2018, from $538.5 billion to $426.9 billion in 2023, Commerce Department data show. About one-eighth of Chinese exports go to the U.S., at least directly. That's down from one-fifth at the outset of Trump's trade war.
Even then, Xi was willing to live with Trump tariffs. The U.S.-China phase one trade deal signed in January 2020 left 90% of Trump's tariffs in place. Yet China agreed to open up its financial sector. It also promised to buy an extra $200 billion worth of U.S. exports over two years (though it bought none as the pandemic intervened).
The main thing China wanted and got out of the deal was continued access to indispensable semiconductor technology. Until Biden dramatically expanded export controls nearly three years later.
Now China is doing everything it can to overcome those export controls and catch up, Robert Maire, president of consulting firm Semiconductor Advisors, told IBD. "By my math, they are spending about six times as much as the U.S. on semiconductor-making equipment."
A Big U.S.-China Deal Or Else ...
In his Inaugural Address, Trump promised a golden era of peace, prosperity and winning. "Our power will stop all wars and bring a new spirit of unity to a world that has been angry, violent and totally unpredictable," he said.
The reality check came quickly. DeepSeek's low-cost AI breakthrough supports hopes of a productivity boom that could propel a Roaring '20s bull market. Yet if the threat of China eclipsing the U.S. in AI compels Trump to intensify the chip war, the fallout could be severe.
"We do need to thWhy This Market Is So Dangerous. Here's What To Do.ink deeply about what happens if we have perfect chip controls — if China actually did not get any chips," Stratechery's Thompson said in a Jan. 30 podcast. "What is the rational response of China in that scenario? It's not a pleasant one."
Beijing could leverage its dominance of key materials, such as gallium and germanium used in advanced semiconductors, to disrupt manufacturing outside China. Other hard-to-imagine steps could range from destructive, like halting production of the Apple iPhone or Tesla Model Y, to dangerous — a move against Taiwan.
The TikTok deal's rise or fall may be the first big clue about where the U.S.-China rivalry is going.
Patrick Seitz and Ryan Deffenbaugh contributed to this article.
