Hello,
In this edition of Week Signals:
IN REVIEW. Notes on a scandal, crime and punishment, beware the counterrevolution.
UP AHEAD. Elections in Gagauzia, meetings in Manila and Shenzhen, three hurdles for Silicon Valley, and a Brexit reset.
The Week in Review: Geopolitics’ midlife crisis
The week began with revelations that Nvidia CEO Jensen Huang had carried out an affair with an alleged Chinese spy. It ended with Huang’s resignation and a cumulative loss of half a trillion dollars in market cap, bringing the total decline since October to $1.7 trillion.
Much has already been written, and there have been many great memes. But beyond the public fascination with Huang’s act (or three) of infidelity, most of the commentary has been around the implications for Nvidia and the tech sector it’s propped up through the continuous release of new hardware, its vast array of circular financing arrangements with unprofitable firms (see more in the Week Ahead, below), and Huang’s leather-jacket enthusiasm for a techno utopia where AI delivers all of the upsides with none of the downsides (including, presumably, Thursday’s Outlook outage and Friday’s FAA ground stop).
Yet, just like his illicit relationships and the potential frailties of the Silicon Valley juggernaut, the broader geopolitical dimensions have been hiding in plain sight. Huang was also a prominent advocate for US engagement and trade with China, as well as its open-weight AI ecosystem. No doubt he was talking his book. Beyond any legitimate sales of older chips to Chinese hyperscalers, short-seller Culper earlier this year assessed that a whopping 20% of Nvidia’s revenues came from illicit Chinese end-users. But being a child of Taiwanese migrants, Huang was also making a point for peace. Can’t we all just get along, and enjoy each other’s intercourse?
And indeed, there are strong arguments for free trade and kumbaya. Beyond Huang’s claims that shutting out China would backfire – a similar contention to former Trump official David Sacks’ argument that the US should get China “addicted” to American technology (shades of the opium wars there) – there’s an enormous body of evidence that restrictions and embargoes seldom work for desired and profitable goods (opium wars again). From 1920s prohibition to today’s surge in US cocaine consumption, even the US military can’t stop it. Will any future chip wars be any different?
Yet Jensen doesn’t make the rules, and under current statute, it’s illegal to sell China high-end chips (which have also ended up in Russia). The AI industry’s nuclear arms race analogy may be specious (we much prefer the analogy of the Silk Road – the non-drugs kind), but laws are laws, and if Nvidia is shown to have broken them, whether through omission or commission, then it should involve more than the loss of a well-paid job and bonuses.
Indeed, if you think it’s important that China, the US’s chief strategic adversary, should not have access to cutting-edge American chips on which to train advanced AI models, then Huang’s alleged smuggling operation, the potential leaking of sensitive information, and the presumed sex-induced foreign influence is a bigger scandal than Kim Philby or Aldrich Ames, at least in raw economic terms. Maybe nobody has been killed, but if the US is indeed in an existential contest with China, then it won’t be hard to link the technological advantage it may have been given by Nvidia’s former boss to any future strategic and military losses, particularly should there ever be a war over Taiwan, the chip-manufacturing island that Huang wanted to see maintained as an unmolested commercial free-for-all.
But, including for business and investors, there may be an even more important geopolitical dimension to this saga than the alleged double-dealing of the man who once sat atop corporate America. And that dimension starts with the alleged involvement of several senior officials in the Trump administration.