On Monday, President Donald Trump granted American chipmakers Nvidia and Advanced Micro Devices (AMD) export licenses for their scaled-down graphics processing units (GPUs) in exchange for 15 percent of the companies’ revenue from Chinese sales. The truly unprecedented deal could be a prototype for the Trump administration moving forward.
On Wednesday, Treasury Secretary Scott Bessent said that the deal is “the model and the beta test” and that he “could see it in other industries over time.” Agreements like the one between Trump and the chipmakers appear to be a constitutionally prohibited export tax and reek of “bribery or blackmail, or both,” according to a former export control official. But they may technically pass legal scrutiny, paving the way for more such deals, as Bessent alluded to.
Barron’s reports that the Bureau of Industry and Security (BIS), an executive branch agency of the Commerce Department that is responsible for granting export licenses, is “forbidden by statute from charging a fee in consideration for an export license.” This prohibition comes as no surprise; the Constitution demands that “No Tax or Duty shall be laid on Articles exported from any State.” Based on this, Trump’s conditioning BIS approval for these companies on a share of their Chinese sales revenue appears straightforwardly unconstitutional.
However, the letter of the law could give Trump the wiggle room he needs to impose these export taxes. Clark Packard, research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, tells Reason, “Article 1, Section 9 of the Constitution prohibits Congress from imposing taxes on exports from states,” but Congress isn’t levying the tax in this case—the president is. Packard says that the president’s imposition of any taxes raises more foundational separation of powers issues.
Setting aside the serious separation of powers issue, Packard says that Trump’s deal with Nvidia and AMD is likely legal due to the precedent set by Peck & Co v. Lowe (1918). In the case, the Supreme Court held “that a generally applicable tax on the income of a corporation derived from its export sales is not a tax on ‘articles exported’ within the meaning of Article 1, Section 9,” says Packard. More legal cover may be provided for the administration’s unorthodox revenue-sharing deal if “the companies are not exporting their chips to China from the US but from the country/region where they are manufactured/packaged,” explains Packard.
Nvidia and AMD are “fabless” semiconductor manufacturers, which means they outsource the physical assembly of their GPUs to Taiwan Semiconductor Manufacturing Company (TSMC). While TSMC has been operating its fabrication plant in Phoenix since late 2024, only Nvidia and AMD’s newest chip models are made in the United States. The rest of TSMC’s production and export, including that of Nvidia’s H20 and AMD’s MI308 chips that are eligible for export to China under Monday’s agreement, occur either in Taiwan (primarily) or Nanjing, China (secondarily).
Legality aside, Trump’s revenue-sharing agreement with Nvidia and AMD “further blurs the line between the public and private sectors [and is] part and parcel with the Trump administration’s fondness for central planning directed by the president himself,” says Packard. It bears repeating that you don’t beat China by copying China, but by embracing the most productive and innovative economic system known to man: the free market.
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