Perhaps it is my legal training, but the first question I have when the Trump Administration announces a new action is: “What is the legal authority for the Trump Administration to do this?” More often than not, there is none.
The latest example is the deal that the Trump Administration struck with U.S. semiconductor companies Nvidia and AMD. In return for 15% of the revenue from sales of artificial intelligence chips in China, the Administration agreed to give these companies export licenses required to sell some advanced AI chips to China.
Does the Trump Administration have the authority to condition export licenses on a share of revenue? No. This is unprecedented. No company has ever been forced to share revenue for an export control license. Indeed, both the U.S. Constitution and the export control statutes actually prohibit such a condition.
For decades, the U.S. has recognized that there are many civilian technologies that also have strategic military military uses. Accordingly, Congress provided limited authorization to the executive branch, which is implemented by the Department of Commerce to regulate these “dual-use” items. If a company wants to export a product that includes controlled technology, it must first obtain a license from the Commerce Department. For many years, the Commerce Department has restricted the export of advanced semiconductors to China. The Biden Administration implemented strict export controls on advanced semiconductors that restricted the chips that could be exported to China in order to ensure that the U.S. maintained a technological advantage in artificial intelligence.
In response to these restrictions, both AMD and Nvidia had developed chips designed to satisfy the AI chip restrictions while still serving the Chinese market. These were essentially parred down versions of the most advanced Nvidia and AMD chips. In April, however, the Trump Administration—with bipartisan applause from the national security community—halted the sale of these chips to China. In July, however, the Trump Administration reversed course and granted both AMD and Nvidia licenses to export these chips to China.
Thanks to reporting by the Financial Times, we are now learning the details of this change. The Trump Administration agreed to grant the licenses only after AMD and Nvidia agreed to give the U.S. Government 15% of the revenue from these Chinese sales.
The national security community is strongly opposed to these new licenses out of concern that these chips will allow China to close the gap in AI capability with the U.S. I am personally skeptical about the efficacy of the controls in the first place. I think the controls will only encourage China to develop its own advanced chip capability. I am therefore not opposed to the AMD and Nvidia licenses.
What disturbs me instead is the precedent of the U.S. government wiling to sell national security for a share of corporate profits. What occurred here is stunning: the Trump Administration made a judgment that national security required that exports to China be restricted, and only changed that judgment when the companies agreed to share revenue with the U.S. Government.
The Washington Post quotes Christopher Padilla, who oversaw export control during the Bush Administration, as noting that “Export controls are in place to protect national security, not raise revenue for the government. . .This arrangement seems like bribery or blackmail, or both.’’ Liza Tobin, an China expert who served in the first Trump Administration asked the Financial Times, “What’s next—letting Lockheed Martin sell F-35s to China for a 15 percent commission?”
This is clearly bad public policy. It is also illegal.
First, as a general rule if the executive branch wants to do something, it must point either to authority under Article II of the U.S. Constitution or statutory authority granted to it by Congress exercising its powers under Article I. The regulation of foreign commerce is clearly assigned to Congress under the Constitution so there is no constitutional authority for the Executive branch to collect revenue. Indeed, the Constitution makes clear that charges on exports is expressly forbidden. Article 1, Section 9 of the U.S. Constitution, which sets out limits of Congress’s powers states as a limitation that “No Tax or Duty shall be laid on Articles exported from any State.”
As a technical matter, the chips made by Nvidia are manufactured in Taiwan, but the technology is controlled by the U.S. because the chips were designed in California. Since it is the technology itself that is being controlled by the license, the revenue condition violate this provision both in spirit and practice.
Second, in the law that established the export control framework, Congress itself has expressly prohibited charging any fee in connection with an export control license. The statute provides “No fee may be charged in connection with the submission, processing, or consideration of any application for a license or other authorization or other request made in connection with any regulation in effect under the authority of this subchapter.”
Seems pretty clear cut to me.
The only saving grace is that as a result of the Miscellaneous Receipts Act, any revenue will go the to U.S. Treasury’s general fund and not some slush fund that can be used by the Administration.
In the end, however, none of this may matter. In our legal system, you can only challenge illegal actions by the government if you are personally injured by the action. Status as a taxpayer is not enough. Unfortunately, the two parties here with clear standing to sue—Nvidia and AMD—have acquiesced and are unlikely to challenge the action in court.
So once again we may have the circumstances of huge overreach by the Trump Administration without a legal remedy.