Howard Lutnick, U.S. Secretary of Commerce speaks during the Pennsylvania Energy And Innovation Summit 2025 at Carnegie Mellon University in Pittsburgh on July 15, 2025.

David A. Grogan | CNBC

Commerce Secretary Howard Lutnick on Tuesday said the Trump administration reversed course on allowing Nvidia to sell its AI chips to China because the U.S. company will not be giving over its best technology.

Lutnick made the remark speaking with CNBC's Brian Sullivan, saying that Nvidia wants to sell China its "fourth best" chip, which is slower than the fastest chips that U.S. companies use.

"We don't sell them our best stuff, not our second best stuff, not even our third best," Lutnick said.

Nvidia said Monday night that it would soon resume sales of the H20 chip to China after the Trump administration signaled that it would grant the chipmaker necessary export licenses.

Lutnick said that the administration said that the renewed sale of H20 chips to China was linked to a rare earths magnet deal. He said it was in U.S. interests to have Chinese companies using American technology so they continue to use an American "tech stack."

"The fourth one down, we want to keep China using it," Lutnick said. "We want to keep having the Chinese use the American technology stack, because they still rely upon it."

Similarly, Nvidia CEO Jensen Huang has said in recent weeks that the U.S. should continue selling his chips to China so Chinese companies don't invest in homegrown infrastructure. Huang on Sunday also said that the Chinese military wouldn't use Nvidia chips anyway, and previously signaled that China's Huawei is a legitimate competitor.

"The idea is the Chinese are more than capable of building their own," Lutnick said. "You want to keep one step ahead of what they can build, so they keep buying our chips."

The reversal is a major win for Nvidia. Huang had previously said the Trump administration's decision to require a license for the H20 chip in April "effectively closed" the China market. Nvidia said it could have sold $8 billion in H20 chips in the current quarter before sales were stopped.

The administration reversed its decision after President Donald Trump met with Huang in Washington last week.

"You want to sell the Chinese enough that their developers get addicted to the American technology stack," Lutnick said. "That's the thinking."

The H20 chip was introduced in 2022 in response to Biden administration export controls. It's based on the same underlying technology as Nvidia's Hopper-generation chips, which are sold in the U.S. as finished systems using H100 or H200 chips.

The U.S. chipmaker took some features out of the H20 in order to sell it to China, including fewer graphics processing unit cores and lower bandwidth connecting separate parts of the chip. But the success of the DeepSeek R1 model suggested that there were many Chinese companies that were just fine with the slowed-down chips. The China-specific H20 is behind Nvidia's Blackwell chips, the H100 and the H200, Lutnick said.

Nvidia says that it releases new artificial intelligence chips every year and that serious AI developers should always try to get the latest and greatest versions because the technology is improving so quickly.

The best AI chips broadly available from clouds and system makers today are called Blackwell, and come as a GB200 chip with a paired central processing unit as well as B100 and B200 versions. Nvidia also makes a range of Blackwell-based chips for gaming and graphics that can be used for AI, but they're generally weaker than the biggest chips designed for data centers.

A successor, called Blackwell Ultra, is only now starting to be installed in data centers, and it's expected to ramp in volume over the next year. In 2027, Nvidia will release "Vera Rubin" chips.