Nvidia and AMD have just agreed to pay a tax of 15% of revenue on sales of advanced semiconductors to China. This is in return for Washington lifting a ban on such sales. Today, Treasury Secretary Bessent has suggested that this form of tax could reasonably be applied to other US-based industries.

In the here and now, this deal makes sense for all parties. The NVDA writedown of the production cost of the chips in question, once their sale to China was barred, was $4.5 billion. If we assume the average NVDA markup of 4x, the lost revenue was $22.5 billion and the lost operating profit was $17 billion.

Assume the chips, now a generation or more old, would sell for half that today– say, $12 billion. A 15% tax on revenues to Washington would be $1.8 billion. So, if they haven’t already been sold elsewhere, NVDA would gain around $10 billion, its production cost plus $5.5 billion in one-time profit. This isn’t $17 billion, but it’s not nothing. So it’s understandable in this particular case, where the chips are already made, paid for and in inventory, why NVDA would happily agree to this. (We can imagine other possible, but unlikely, I think, cases, where, say, NVDA has already sold the banned chips elsewhere and has to order fresh chips from TSMC, but let’s not worry about these.)

The main point I see for NVDA is that if it were to relocate to, say, Vancouver, it would retain China and its $100 billion+ annual revenue stream as a customer, without having to worry about future halts on sales or export tariffs of $15 billion.

At the very least, the actuality of export tariffs would diminish the attractiveness of the US as a manufacturing base for exports to the rest of the world. Couple that with the ICE efforts to shrink the domestic workforce, and it’s hard for me to see how we’re making the economy stronger. I still think the right portfolio posture is to have foreign sales and domestic costs, but it may now be that, until the economic policy picture becomes clearer, that companies with intangible assets will fare better than those with tangible.