Nvidia is set to launch a downgraded version of its H20 artificial intelligence (AI) chip specifically tailored for the Chinese market within the next two months. This strategic move comes in response to a ban imposed by the U.S. government on the original H20 model, which had previously been the most powerful AI chip permitted for sale in China. Sources indicate that Nvidia has already informed its primary customers in China, including a leading cloud service provider, about the upcoming release of this modified version in July 2025.
The decision to downgrade the H20 chip is part of Nvidia's ongoing effort to maintain its foothold in one of its most critical markets, especially as Washington intensifies its measures to restrict China's access to advanced semiconductor technology. The original H20 model's sales came to a halt last month when U.S. authorities notified Nvidia that it would now require a special export license for sale.
To adapt to these new regulations, Nvidia is developing a modified version of the H20 that will feature a significant reduction in memory capacity, a crucial element for AI performance. While this change may hinder some capabilities, one source mentioned that end users in China might still be able to adjust the chip module configuration to a limited extent, potentially restoring some performance levels.
When approached for comment, Nvidia declined to provide any details, and the U.S. Department of Commerce also did not respond to media inquiries regarding the situation. Notably, China accounted for approximately $17 billion, or about 13%, of Nvidia's total sales in the fiscal year ending January 26, 2025, underscoring the importance of the Chinese market in the company's global strategy.
Highlighting this significance, Nvidia CEO Jensen Huang visited Beijing last month, just days after the U.S. announced the new export license policy affecting the H20 chip. During his meeting with Chinese officials, Huang emphasized the critical role of the Chinese market for Nvidia's future growth.
The U.S. began limiting the export of Nvidia's advanced chips to China in 2022, citing concerns about the potential military applications of the technology. Following the tightening of controls in October 2023, Nvidia had launched the H20 chip as an alternative that could still comply with export restrictions. However, the latest regulations have now placed the H20 chip back under scrutiny, prompting Nvidia to innovate once more in order to meet the demands of the Chinese market.
Several tech giants in China, including Tencent, Alibaba, and ByteDance, had significantly increased their orders for H20 chips earlier this year, driven by a rising demand for efficient AI models. With the upcoming modified version, Nvidia hopes to continue supplying products to China while adhering to U.S. export rules. However, questions remain about whether this downgraded version will meet the performance expectations of the market.
In a separate but related development, U.S. President Donald Trump recently suspended his "reciprocal tariffs" on major American trading partners, yet he escalated existing penalties on Chinese goods, injecting further uncertainty into the already turbulent trade relationship between the two nations. One of Beijing's key strategies in this trade war has involved imposing calculated export controls on rare earth elements, which are vital for manufacturing both commercial and military products, as well as space technology.
China is the world’s largest producer and consumer of rare earths, accounting for 90% of the global supply and dominating production capacity. As a reaction to Trump's decision to increase tariffs on most Chinese products to 54%, which later expanded to 125%, China implemented export restrictions on rare earth elements earlier this April. These restrictions have stirred anxiety in the U.S. defense industry, as rare earths are essential for technology used in military equipment, including jet engines, radar, avionics, and other electronic systems.
So far this year, Washington has imposed tariffs totaling 145% on Chinese imports, raising the effective tariff rate to around 156%. On April 4, 2025, the Chinese Ministry of Commerce placed seven categories of medium and heavy rare earths—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium-related items—on an export control list. The elements now subject to these trade restrictions will require special export licenses to be shipped out of China, allowing Beijing to throttle shipments by controlling the number of export licenses issued.
The export controls apply to shipments to all countries, not just the United States, with outright bans still a possibility. As the U.S. and China continue to navigate this fraught landscape of trade and technology, the implications of these developments for both nations—and the global market—remain to be seen.
