Export Restrictions

I'd like to take a little time to talk about how the current administration has handled export restrictions.  To ensure we're on the same page, let's start by explaining what they are, and why they exist.  In a nutshell, some technologies and products have government-imposed export limits.  These controls are generally imposed to achieve national security, foreign policy or economic objectives.  Export restrictions are not universally bad based on this rationale.

Earlier this year, the current administration prohibited Nvidia and AMD from exporting chips to China, with the stated reason being that China doesn't play fair.  China has a long history of reverse-engineering cutting-edge American technology, and then selling essentially the same product at a far lower cost.  This is achievable due to China's centralized control of the economy.  (AKA communism.)  In other words, the administration's allegation is reasonable.

When the restrictions were announced, AMD and Nvidia were justifiably concerned.  China has historically been a lucrative market for their technology, and there was a strong possibility that the companies would take a huge profitability hit.  It certainly made sense that they'd ask the Oval Office to reconsider.

In relatively short order, agreements were made that allowed Chinese exports to resume.  But there was a twist.  Nvidia and AMD agreed to give 15% of profits from Chinese sales to the American government. 

Historically, the government has rarely held a stake in private businesses, such as during wars, or when the government bailed out stressed businesses deemed too big to fail.  The government relinquished control once the crisis has passed.

What's troubling in this case is that Nvidia and AMD are giving up a portion of their profits in exchange for being able to resume certain exports to China.  This certainly gives the appearance that money is more important than national security.  In other words, it looks like pay to play.  This, of course, is counter to the premise of capitalism, where businesses succeed or fail on their own merits, and it brings up the specter of future conflicts of interest.  It's quite possible that future legislation grants these businesses an unfair advantage over real or potential competition.  (As I say this, I freely acknowledge this is nothing more than slippery slope speculation on my part.)

It's certainly interesting to see an administration that decries anything remotely socialist, taking action that could certainly be interpreted as a step toward a command economy.