Tariffs not likely to undermine Nvidia's AI dominance
Tariffs and restrictions on exports could mean more competition for the world's top AI hardware company. However, the vendor will still likely keep its lead in the AI chip market.
While President Donald Trump's new and expected tariffs will likely disrupt how U.S. companies do business abroad, one tech giant might feel the effects more than others.
AI hardware and software provider Nvidia is expected to be hurt most by the expected tariffs, in large part because it is the world's top maker of AI chips and is most vulnerable to supply chain fluctuations. The vendor revealed on April 15 that it would take a $5.5 billion hit due to the U.S. export rules for China.
As of April 9, Nvidia will need export licenses to ship its H20 GPUs to China. Nvidia created the H20 chips to be an alternative to its more powerful AI chips -- the H100 and H200. In mandating export licenses, the U.S. Department of Commerce said that despite the H20 not being the most advanced Nvidia AI chip, it could still be used in supercomputers in China, which is locked in an escalating trade war and AI race with the U.S.
A day before revealing what it expected to lose financially due to the new rules, Nvidia said it will now produce its AI supercomputers entirely in the U.S. The vendor plans to use over 1 million square feet of manufacturing space to build and test its Blackwell chips in Arizona and AI supercomputers in Texas.
Nvidia's U.S. manufacturing initiative comes amid a volatile international trade environment after the Trump administration imposed new tariffs on Chinese goods. Currently, the average U.S. tariff on Chinese exports is 145%. The Trump administration is also considering imposing tariffs on imported semiconductors.
Such tariffs could affect Nvidia by disrupting the vendor's supply chain of the materials it needs to produce its AI chips, while leading to more competition from Chinese AI hardware provider Huawei.
They will also raise costs for the Taiwan Semiconductor Manufacturing Co. (TSMC) and South Korea's Samsung. TSMC manufactures most of the chips in the U.S., so tariffs could lead to Nvidia and other AI chip providers reducing orders, especially if the countries hit with tariffs decide to retaliate. This could lead to Nvidia seeing more competition from Chinese chip makers like Huawei and manufacturers like mainland China-based Semiconductor Manufacturing International Corp.
That, in turn, could lead to a replay of the scenario that unfolded in January, when Chinese startup DeepSeek released DeepSeek-R1, a powerful, low-cost, low-compute generative AI reasoning model.
DeepSeek's apparent achievement stunned U.S. investors, causing the tech market to plummet, led by a massive selloff of Nvidia stock. The competition that Nvidia could face from Huawei due to tariffs could have the opposite effect that the U.S. government wants, said Nick Patience, an analyst at The Futurum Group. The U.S. administration's overall goal is to slow down growth in the Chinese AI industry, he noted.
"These export controls placed on these H20s that would, in theory, slow down AI development pace in [China]," Patience said. "The flip side is it gives Chinese chipmakers a significant opportunity. They have a large, protected market for domestic AI chip production."
One indication of this development came earlier this month, when Huawei's plans to ship its 910C AI chip to Chinese customers surfaced. The 910C chip is comparable to Nvidia's H100.
"The more constraints on the market, the more likely innovation is to flourish," Patience said. That is because the Chinese AI sector will need to find a way to advance with less access to foreign chips.
Nvidia maintains leadership
Even though Huawei might be able to serve the Chinese chip market and despite losses Nvidia is likely to sustain due to the inability to import its chips to China, the hardware and software vendor will remain the dominant AI chip provider, Patience said.
We're a long way from Nvidia losing its lead in the high-performance GPU market, which is the one it dominates.
Nick PatienceAnalyst, The Futurum Group
"We're a long way from Nvidia losing its lead in the high-performance GPU market, which is the one it dominates," he said.
He added that even if Huawei serves the Chinese and other international markets, it's unlikely that Western countries will start buying Huawei's chips. Moreover, said Kashyap Kompella, CEO of RPA2AI Research, advanced AI chips are not China's strength.
"China can practically make everything under the sun, but high-end chips are one of the few areas where China is behind," Kompella said. "AI and semiconductors are strategically important industries for China. Export controls were in place on high-end GPUs. So, self-sufficiency was already a priority for China."
On the other hand, the expected tariffs are a "short-term threat, while the export controls are a medium-term threat to Nvidia's business," Kompella continued.
"As the tariffs and export controls apply to all U.S. tech companies, there is no rival rushing in to fill the gap," he said. "If any, Nvidia is well-positioned to weather this turbulence because of their industry leadership and strong balance sheet."
A supply issue
However, many still expect the tariffs to hurt Nvidia's bottom line, leading to a supply problem for AI chip buyers.
"Because of all the tariffs, the supply will reduce, which will make some of this availability of chips harder," said Brian Sathianathan, co-founder and CTO of Iterate.ai., a vendor that provides AI technology for enterprises in industries such as retail, banking, finance and healthcare. In the past, Iterate created an open source AI model for schools that can detect weapons. The system runs on Nvidia GPUs.
Most of the tech giants and leading generative AI vendors -- including Google, OpenAI and Meta -- rely on Nvidia for AI chips.
"You're going to see a lot more invention and innovation trying to maximize everything you have today," Sathianathan said. "Nvidia themselves will have to do a lot more innovation to bring either manufacturing to America, use a lot smaller chips and kind of squeeze the juice out of what's available today."
Nvidia is already trying to mitigate the supply problem by designing and building in the U.S.
Moreover, TSMC has also revealed it plans to produce 30% of the world's semiconductors in Arizona to help the U.S. build an "independent" chip hub. However, much of the equipment needed to manufacture these chips comes from Netherlands-based Advanced Semiconductor Materials Lithography (ASML). On April 15, ASML's CEO warned of new uncertainty due to the new tariffs. ASML also reported missing its order expectation, adding to fear about the tariffs.
"It would have an effect up and down the supply chain," Patience said. "It's quite difficult to predict what will happen regarding tariffs."
A cycle of effects
For its part, China might retaliate against the U.S. tariffs and impose tariffs on Nvidia, said Andy Thurai, CEO and founder of The Field CTO.
"Higher costs for components and finished products used by them can affect them a lot," Thurai said. He added that if China opts to control the supply of rare earth and minerals that are needed to manufacture Nvidia chips, it could also affect Nvidia and other chip manufacturers. China did just that last week, halting exports of those critical minerals, which are also used in electric car batteries and factory automation.
Meanwhile, on April 4, China's Finance Ministry levied a 34% tariff on all goods from the U.S., in response to the original tariffs Trump rolled out April 2.
Keeping with his recent practice of backtracking on tariffs, Trump later said on April 22 that the 145% tariffs on China are too high and would come down significantly.
Meanwhile, even with Nvidia building a new AI supercomputer and manufacturing hub in the U.S. and TSMC's similar plans, it's unclear if the U.S. can handle the demand.
"Building more in the U.S. would be good for the U.S. economy," Patience said. "It's a question of whether the U.S. can build enough of the manufacturing capacity to cope with what is likely to be very strong demand over the next two to three years."
Also, the cost of the tariffs could be passed down to Nvidia's customers in the U.S., which would mean higher prices, Thurai said.
"This will also affect the foreign customers, as they have to pay probably a higher tariff by their own governments," he continued.
And apart from the sharp up and down swings of the stock market since tariffs became a major issue, the effects of the tariffs and export restrictions won't be felt for a few quarters.
"Due to the tariffs and export controls, we are in uncharted territory," Kompella said. "This uncertainty will take a few quarters to resolve as the major players assess their options."
Nvidia declined to comment for this story.
Esther Shittu is an Informa TechTarget news writer and podcast host covering AI software and systems.
