“We have negotiated a small agreement,” said President Donald Trump on August 11, about the development situation with the main manufacturers of Nvidia and AMD fleas who continue to do business in China. He explained that he originally wanted a 20% drop in NVIDIA sales in exchange for the company obtaining export licenses to sell H20 Chip to China, but he was convinced to settle at 15%. The H20 chip is “obsolete”, added Trump … “He sells an essentially old chip”.
The fleas seem to be important enough for China, since the administration of the China cyberspace has held discussions with NVIDIA on security problems that H20 fleas can be followed and deactivated remotely, according to disclosure on its website. The agreement, which raised an export ban on the NVIDIA AI H20 fleas and the MI308 of AMD, and followed animated negotiations, was largely described as unusual and always theoretical at this stage, the legal details being always appeased by the Ministry of Commerce. Legal experts wondered if the possible agreement would constitute an unconstitutional export tax, because the American Constitution prohibits export rights. This has become known as “export clause” of the Constitution.
Indeed, it is difficult to find a lot of preceding in the history of American government relations with the business sector. Erik Jensen, professor of law at the western university unit unit who studied the history of the export clause, told Fortune He was not aware of something like that in history. In the 1990s, he added, the Supreme Court annulled two attempted tax attempts for export clause reasons (cases known as the name of IBM And Shoe). Jensen said that tax practitioners were surprised that the court resumed business: “If only because most of them do not pay attention to constitutional limitations, and that the court had heard no case of export clause for about 70 years.” The point to remember was clear, Jensen said: “The export clause is important.”
The professor of Columbia University, Eric Talley, agreed with Jensen, saying Fortune that although the federal government has already applied grants For exports, it is not aware of other historical cases imposing taxes on selected exporters. Talley also cited the export clause as usual reasons to find such unconstitutional arrangements.
Rather than minimizing the unique character of the arrangement, the secretary of the Treasury Scott Bessent looked. In a Bloomberg television interview, he said: “I think you know, right now, it’s unique. But now that we have the beta model and test, why not develop it? I think we could see it in other industries over time.”
Bessent and the White House insist that there are “no national security problems”, because only less advanced fleas are sold to China. Instead, officials presented the agreement as a creative solution to balance trade, technology and national policy.
How rare is it?
The arrangement has led to a strong reaction from business leaders, legal experts and commercial analysts. Julia Powles, Director of the UCLA Institute of Technology, Law and Policy, told the Los Angeles Times: “It connects the fate of this flea manufacturer in a very particular way to this administration, which is quite rare.” Experts have warned that if it was reproduced, this model could put pressure on other companies – not just technology giants – in similar arrangements with the government. Already, several unprecedented arrangements have been concluded between the Trump administration and the business sector, ranging from the “gold share” in American steel negotiated in the context of its takeover by Nippon Steel in Japan in the federal government which would have discussed the purchase of participation in Chipmaker Intel.
NVIDIA and AMD refused to comment on the details. When contacted by Fortune For comments, Nvidia reiterated his declaration according to which he follows the rules that the United States government establishes for its participation in the world markets. “Although we have not shipped H20 to China for months, we hope that the export control rules will allow America to compete in China and around the world. America cannot repeat 5G and lose leadership of telecommunications. The America’s battery of America can be the global standard if we run. ”
The White House refused to comment on the potential agreement. AMD did not respond to a request for comments.
While Washington has often intervened in business, especially in times of crisis – the mechanism and the extent of the NVIDIA / AMD agreement are practically unprecedented in recent history. The federal government seems to have never called for a percentage of business income from export sales as a prior condition for market access. Instead, previous actions have taken the form of temporary nationalization, regulatory control, subsidies or reunification – often during the war or the economic urgency. The examples of this include the seizure of coal mines (1946) and Steel Mills (1952) during the work strikes, as well as the plumps of the 2008 financial crisis, where the government has taken actions in large companies, including two of the three large in Detroit and most key banks in Wall Street. During the First World War, the War Industries Board regulated the prices, production and business conduct for the war effort.
Congress previously created export incentives and tax dissemination strategies (such as national acts of Sales Sales Corporation and Foreign Sales Corporation), but these measures prompted sales rather than directly diverting a fixed part of export income to the government. Legal researchers point out that such arrangements have been subject to global commercial rules and then modified after international complaints.
World missing
The American ban on export taxes dates back to the birth of the nation. Jensen de Case Western wrote that some delegates from the Constitutional Convention of 1787, such as Alexander Hamilton in New York, were in favor of the possibility of sources of tax revenue such as imports and exports, but the “basic states” in the south of the United States were fiercely opposed, given their agricultural curvature, in particular the importance of cotton at that time.
However, many other countries currently have export taxes on books, although they are generally imposed on all exporters, rather than punctual arrangements that abolish barriers to a specific market. And many nations with export taxes are developing countries that tax agricultural or resources. In several cases (Uganda, Malaysia, Sudan, Nigeria, Haiti, Thailand), export taxes represented 10% to 40% of total government tax revenue in the 1960s and 1970s, according to a IMF staff document.
On a global scale, most tax countries the profits generated within their borders (“taxes on companies based on sources”), but rarely as a direct percentage of export sales as a prior condition for market access. The standard model is the imposition of the profits won locally, regardless of the export destination; License fees and prices can be applied, but not generally as a fixed percentage of export income as pre-negotiated entry costs.
Although the NVIDIA / AMD agreement does not take the usual form of a tax, added Jensen of Case Western. “I don’t see what it could be characterized.” It is clearly not a “user fees”, which, according to him, is the usual law issue in the case of export clause. For example, if goods or services are provided by the government in exchange for the accusation, such as reception costs in a port operated by the government, these costs are not a tax or a right and the export clause is not relevant. “I simply do not see how the charges that will be taken in the cases of fleas could be characterized in this way.”
The players are known to “play” the various legal treatments of subsidies and taxes, added Talley de Columbia. He cited the example of a government imposing a uniform and crossed tax on all producers, but then offering a subsidy to the sellers who sell to the internal markets. “The net effect would be the same as an export tax, but indirectly.” He was not aware of this in the United States, but cited several international examples, notably Argentina, India and even the EU.
A famous example of an international tax strategy was the home of Apple in Ireland, as well as many other multinationals keeping their international profits in Offshore in affiliated companies in order to avoid paying American taxes, which applied at the time to all world income during repatriation. Talley said that a large part of this had disappeared after the 2018 tax reforms, which removed the United States from a global corporate tax, with a few exceptions.
Comparison of the protective racket
If the Trump flea export tax is an anomaly in the annals of American international trade, the structure of the agreement has parallels in another corner of the business world: organized crime, where “protective rackets” have a long history. Companies linked by these transactions must pay a reduction in their income to a criminal organization (or a parallel government), in fact that the cost to be authorized to operate or avoid damage.
The export tax of fleas in China and the protective rackets extract income as Condition for market access, use the threat of exclusion or punishment for non-payment, and both can be justified as “protection” or “guaranteed access”, but are not freely negotiated by the company.
“He certainly has the smell of a government shakedown in some respects,” said Talley de Columbia FortuneConsidering that “the underlying threat was an outright export ban, which makes a surcharge of 15% pleasant to the comparison.”
Talley noted certain shades, such as the broad statutory and constitutional support generally established for export prohibitions based on national security on various goods and services sold to the countries listed, which were imposed with legal authority in China, North Korea, Iraq, Russia, Cuba and others. “From an economic point of view, a ban on an exported property is equivalent to a tax of” infinite percentage “on the good”, said Talley, which means that it actually closes the export market for this good. “Seen from this angle, a 15% tax is less (and no more) extreme than a ban.”
However, there is the question, similar to the Trump pricing regime, to make a legal challenge to a ostensibly illegal policy holder of the court. “A serious question with the chip tax,” Jensen told Case Western at Case Western Fortune“Who, if someone, would have been standing to challenge the tax?” In other words, this can be unconstitutional, but which will really force the federal government to obey the Constitution?
