Nvidia shares took a hit on Monday, falling 3%, after Chinese regulators announced a formal antitrust investigation into the company.

The probe is being led by the State Administration for Market Regulation (SAMR), which is scrutinizing Nvidia’s $6.9 billion acquisition of Israeli tech company Mellanox Technologies back in 2020.

The acquisition involved agreements that the Chinese government now claims may have violated its antimonopoly laws. The Chinese regulator’s statement, translated by CNBC, said it was acting “in accordance with the law” to investigate Nvidia for “restrictive conditions” linked to the Mellanox deal.

The investigation has raised concerns about Nvidia’s ability to operate in one of its biggest markets, just as the global chip industry faces growing geopolitical challenges.

Chip wars heat up between the U.S. and China

This whole thing just adds more fuel to the ongoing chip war between the U.S. and China. The Biden administration recently tightened export controls on semiconductors, barring Nvidia and other U.S. chipmakers from selling their most advanced AI chips to Chinese buyers.

These restrictions are part of a broader strategy to prevent China from gaining access to technology that could improve its military capabilities.

In response to U.S. sanctions, Nvidia created downgraded versions of its AI chips to stay compliant with regulations while still doing business in China. However, these measures have not been enough to ease the tensions.

The Chinese investigation into Nvidia could be seen as retaliation for U.S. trade policies, which have repeatedly targeted China’s tech sector.

The U.S. isn’t backing down either. Earlier this month, the Biden administration announced a new round of curbs aimed at semiconductor toolmakers. These restrictions, combined with past measures, have significantly limited the flow of advanced technology to China.

Meanwhile, President-elect Donald Trump, set to take office in January, has promised even harsher trade measures, including a proposed 60% tariff on Chinese goods.

China’s actions against Nvidia follow similar moves targeting other U.S. tech companies. In 2023, China’s cybersecurity regulator barred Micron Technology’s chips from being used in critical infrastructure projects, claiming they failed to pass a security review. Micron reported that nearly half of its revenue tied to Chinese clients could be at risk because of the ban.

Nvidia’s global antitrust troubles

Earlier this year, the U.S. Department of Justice launched its own investigation into Nvidia’s business practices. Officials looked into allegations that the company made it harder for customers to switch to rival suppliers and imposed penalties on buyers who didn’t exclusively use Nvidia’s chips.

France also took aim at Nvidia in 2023. The country’s antitrust agency investigated the company’s AI chip dominance, with the head of the agency warning that Nvidia could face charges in the future.

The European Union is also conducting an early-stage probe into potential anticompetitive practices in the AI hardware market. Nvidia’s GPUs, which were originally designed for video gaming, have become essential for training artificial intelligence models and running advanced applications.

With competitors like Amazon working to create their own chips, the company’s hold on the market is under pressure. For now, though, Nvidia’s GPUs are in such high demand that they often sell for tens of thousands of dollars each.

The bigger picture

The Nvidia investigation is part of a larger economic battle between the U.S. and China. Over the past six years, trade tensions have escalated dramatically. During his first term, Donald Trump initiated a trade war with China, imposing tariffs on billions of dollars worth of goods.

Now as he prepares to return to office, Trump has vowed to take an even harder stance. China’s options for direct retaliation are limited because of its massive trade surplus with the U.S., but it has other tools at its disposal. One possibility is selling off its $734 billion in U.S. Treasury holdings.

While this would disrupt global financial markets and put upward pressure on U.S. bond yields, it would also hurt China’s own foreign-exchange reserves. Another option is devaluing the yuan. A cheaper currency would make Chinese exports more competitive, helping to offset the impact of U.S. tariffs.

During the 2018-2019 trade war, the yuan lost 11.5% of its value against the dollar, cushioning much of the tariff burden. But further devaluation risks triggering capital outflows and discouraging foreign investment. China has already shown its willingness to take asymmetrical measures.

In addition to targeting Nvidia and Micron, Beijing has tightened its grip on rare earth minerals, which are critical for manufacturing high-tech products. Any escalation in the trade war could see China weaponizing its dominance in these materials, creating more chaos in global supply chains.

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