Columbia University professor Eric Talley agreed with Jensen, telling Fortune that while the federal government has previously applied subsidies to exports, he’s not aware of other historical cases imposing taxes on selected exporters. Talley also cited the export clause as the usual grounds for finding such arrangements unconstitutional.
Bessent and the White House insist there are “no national security concerns,” since only less-advanced chips are being sold to China. Instead, officials have touted the deal as a creative solution to balance trade, technology, and national policy.
Nvidia and AMD have declined to comment on specifics. When contacted by Fortune for comment, Nvidia reiterated its statement that it follows rules the U.S. government sets for its participation in worldwide markets. “While we haven’t shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide. America cannot repeat 5G and lose telecommunication leadership. America’s AI tech stack can be the world’s standard if we race.”
Congress has previously created export incentives and tax-deferral strategies (such as the Domestic International Sales Corporation and Foreign Sales Corporation Acts), but these measures incentivized sales rather than directly diverting a fixed share of export revenue to the government. Legal scholars stress that such arrangements were subjected to global trade rules and later modified after international complaints.
Globally, most countries tax profits generated within their borders (“source-based corporate taxes”), but rarely as a direct percentage of export sales as a market access precondition. The standard model is taxation of locally earned profits, regardless of export destination; licensing fees and tariffs may be applied, but not usually as a fixed percent of export revenue as a pre-negotiated entry fee.
Although the Nvidia/AMD deal doesn’t take the usual form of a tax, Case Western’s Jensen added. “I don’t see what else it could be characterized as.” It’s clearly not a “user fee,” which he said is the usual triable issue of law in export clause cases. For instance, if goods or services are being provided by the government in exchange for the charge, such as docking fees at a governmentally operated port, then that charge isn’t a tax or duty and the Export Clause is irrelevant. “I just don’t see how the charges that will be levied in the chip cases could possibly be characterized in that way.”
Players have been known to “game” the different legal treatments of subsidies and taxes, Columbia’s Talley added. He cited the example of a government imposing a uniform, across-the-board tax on all producers, but then providing a subsidy to sellers who sell to domestic markets. “The net effect would be the same as a tax on exports, but indirectly.” He was unaware of this happening in the U.S. but cited several international examples including Argentina, India, and even the EU.
If Trump’s chip export tax is an anomaly in the annals of U.S. international trade, the deal structure has some parallels in another corner of the business world: organized crime, where “protection rackets” have a long history. Businesses bound by such deals must pay a cut of their revenues to a criminal organization (or parallel government), effectively as the cost for being allowed to operate or to avoid harm.
The China chip export tax and the protection rackets extract revenue as a condition for market access, use the threat of exclusion or punishment for non-payment, and both may be justified as “protection” or “guaranteed access,” but are not freely negotiated by the business.
“It certainly has the smell of a governmental shakedown in certain respects,” Columbia’s Talley told Fortune, considering that the “underlying threat was an outright export ban, which makes a 15% surcharge seem palatable by comparison.”
Talley noted some nuances, such as the generally established broad statutory and constitutional support for national-security-based export bans on various goods and services sold to enumerated countries, which have been imposed with legal authority on China, North Korea, Iraq, Russia, Cuba, and others. “From an economic perspective, a ban on an exported good is tantamount to a tax of ‘infinity percent’ on the good,” Talley said, meaning it effectively shuts down the export market for that good. “Viewed in that light, a 15% levy is less (and not more) extreme than a ban.”
Still, there’s the matter, similar to Trump’s tariff regime, of making a legal challenge to an ostensibly blatantly illegal policy actually hold up in court. “A serious question with the chips tax,” Case Western’s Jensen told Fortune, “is who, if anyone, would have standing to challenge the tax?” In other words, it may be unconstitutional, but who’s actually going to compel the federal government to obey the constitution?
