The US has blocked export of Nvdia chips to China. But where there’s profit, there’s a way. 
Sanctions Fail Again and Again
The Wall Street Journal reports China’s AI Engineers Are Secretly Accessing Banned Nvidia Chips
Chinese artificial-intelligence developers have found a way to use the most advanced American chips without bringing them to China.
One entrepreneur helping Chinese companies overcome the hurdles is Derek Aw, a former bitcoin miner. He persuaded investors in Dubai and the U.S. to fund the purchase of AI servers housing Nvidia’s powerful H100 chips.
In June, Aw’s company loaded more than 300 servers with the chips into a data center in Brisbane, Australia. Three weeks later, the servers began processing AI algorithms for a company in Beijing.
“There is demand. There is profit. Naturally someone will provide the supply,” Aw said.
Renting far away computing power is nothing new, and many global companies shuffle data around the world using U.S. companies’ services such as Google Cloud, Microsoft Azure and Amazon Web Services. However, those companies, like banks, have “Know Your Customer” policies that may make it difficult for some Chinese customers to obtain the most advanced computing power.
The buyers and sellers of computing power and the middlemen connecting them aren’t breaking any laws, lawyers familiar with U.S. sanctions say. Washington has targeted exports of advanced chips, equipment and technology, but cloud companies say the export rules don’t restrict Chinese companies or their foreign affiliates from accessing U.S. cloud services using Nvidia chips.
Buyers and sellers of computing power use a “smart contract” in which the terms are set in a publicly accessible digital record book. The parties to the contract are identified only by a series of letters and numbers and the buyer pays with cryptocurrency.
The process extends the anonymity of cryptocurrency to the contract itself, with both using the digital record-keeping technology known as blockchain. Aw said even he might not know the real identity of the buyer. As a further mask, he and others said Chinese AI companies often make transactions through subsidiaries in Singapore or elsewhere.
One decentralized GPU provider with more than 40,000 chips in its network, io.net, advertises in its user guide that it doesn’t impose know-your-customer restrictions. This “allows users to access GPU supply and deploy clusters in less than 90 seconds,” it says.
Meanwhile, Aw is raising more money from a group of investors in Saudi Arabia and South Korea. They plan to build a cluster of Nvidia’s latest Blackwell chips for another Singapore company with a Chinese parent.
“No one is breaking the export controls,” Aw said. “Legally speaking, they are Singapore companies.”
Know Your Customer’s Customer’s Customer
China sets up an AI company in Singapore.
AI developers buy cloud time through a subsidiary that further masks the operation by paying in Bitcoin.
In turn, the subsidiary buys time from a company Dubai or Singapore that hosts the servers.
US politicians outraged. But some of us are amused knowing full well that sanctions don’t work.
And instead of cloud profits going to US corporations, the profits go to Saudi Arabia, Singapore, Dubai, and South Korea.
Only Amazon is forced to “know your customer”.
Flashback Lesson
Massive Failure of Sanctions
September 19, 2023: Lesson of the Day: Sanctions Don’t Work Because They Create New Markets
December 29, 2023: How Russia Makes a Mockery of US Sanctions in One Picture
February 19, 2024: US Impounds Thousands of German Vehicles Over One Tiny Part Made in China
May 21, 2024: Another Sanction Failure: The US Blacklisted Xiaomi Three Years Ago Now it Makes EVs
June 11, 2024: Russia to Export Coal to India Via Iran. It’s a 4 Alarm Bells Fire
Sanctions don’t work but they do drive up prices and/or create competition for US companies.
The beneficiary is either the sanctioned company, as in the case of China’s EV maker Xiaomi, or intermediaries as in today’s example.
Biden Eases Sanctions on Venezuela, Blocks Rare Earth Mining in Alaska
On April 21, 2024 I noted Biden Eases Sanctions on Venezuela, Blocks Rare Earth Mining in Alaska
What a hoot. How’s that great tradeoff working out?
Since we know the answer, here’s our real question of the day: Is robin Brooks finally ready to throw in the towel on the effectiveness of sanctions?
If he responds, I will add an addendum.
The killing of innocent people in Germany and the UK never stopped. Israel, Germany and the UK might share a mandate over Jasa in order to deport the illegals to that place. They will be employed by the EU, replacing Turkey cheap labor. Where else can they go. Oil terminals by MBS and the silk road between India and Europe will pacify the ME. From hell to a flourishing place, within a decade or two. Hauge bs.
If as part of the export control, the US stated that they would sanction any company on earth that in any way allows China to have access in any way to a banned product, then sanctions would be way more effective. The problems seem to be that we have politicians than can’t anticipate what Mish calls new markets and they don’t have the stomach to go all in.
When Vance gave his interview to the Meet the Press joruno Sunday, he should have clearly stated that, oftentimes, tariffs are absorbed by both the exporter and importer.
For example, if the US allows Chinese made EVs to be imported to the US after placing a 10% tariff on them, there’s a near 100% certainty that the exporter & importer would absorb that additional cost in order to ensure the retail price doesn’t increase.
Any number of goods at modest tariff rates would result in the exact same outcome. Tariffs & sanctions would work a lot better if they were properly applied.
To act like tariffs & sanctions are completely bad is just idiotic. The US doesn’t trade in a vacuum. I’ve been posting on Mishtalk for three years now, and I’ve challenged Mish dozens of times to outline a comprehensive plan as to how he would effectively counter China.
If I’ve missed multiple posts on the subject, then my bad. But as far as I know, he’s never put together let’s say a 10-point plan. If the plan is to never use tariffs or sanctions, then thank goodness someone else is running the country.
Spell out for us: EXACTLY how TARIFFS BENEFIT CONSUMERS.
NO?
I did not think so.
IT IS INANE to think that someone can argue that TARIFFS WORK.
HOW do they “WORK?” IF YOU ARE ARGUING “TIT FOR TAT” then that simply descends into a “Trade War.”
Imagine a VILLAGE that produces NO CHEAP MEAT for its residents (due to soil conditions and a lack of water); then town officials put TARIFFS on any IMPORTED MEAT; and the PRODUCER OF COURSE KNOWS that there is NO MEAT locally produced.
HOW does that benefit our imaginary meatless Village?
IT DOES NOT other than making the delivered Price HIGHER.
The TARIFFS are collected by Village Officials who spend it on booze and parties for their fellow officials. THE TARIFFS ARE NOT RESERVED IN VILLAGER ACCOUNTS IN THE FORM OF AN ANNUAL TAX REBATE, RIGHT?
RIGHT?
THAT WORKS, RIGHT?
Not a single thing you stated refutes my point that in modern economies importers and exporters of goods are not able to absorb tariffs in some cases.
Using a simple example, an exporter of furniture from China to the US may have a 50% gross margin on their product, so they’re able to absorb a 10% tariff.
Now, does this apply to all tariffs? No of course not, but in many cases, this is exactly what happens or at least does not result in anywhere near the entire tariff being passed along to the end consumer.
So what’s the next result of that? Well, two things. First, the exporter is making less money which is great if you’re trying to weaken China. And, you’re right under the right circumstances, there could be a trade war.
Well, who would be hurt more by a trade war with China? That’s a very tough question. There are tons of non-strategic products from China that the US could get along without that China’s economy would crater if they stopped selling them to the US or were significantly reduced. However, there are some really important products that we can’t do without. Pharma is one of them that China is a major supplier of certain ones.
As far as I know, there’s never been a trade war with China. The Internet says we’re currently in a trade war with China and it’s all Trump’s fault which is laughable. We’re not in a REAL trade war and Biden has kept many of Trump’s tariffs in place.
There is no such thing as free trade. Even with trade agreements, there’s usually an overall on-net looser but that, of course, is very hard to quantify.
America would be much better off if we identified & prioritized all sorts of extremely strategic goods and used tariffs to push manufacturing back to the US or to friendly shores.
And when those exporters and importers choose not to absorb the costs, then what’s the plan? Make consumers do it? That lowers standards of living.
Technically your idea could extend to any goods in the country itself. Just raise taxes (tariffs) on all goods and wait for business and producers to absorb the costs while government rakes in bank. You think that would work?
All I’m saying is that, oftentimes, the full cost of the tariffs are NOT passed along to the consumer, far from it in many cases. Part or most of them are absorbed, but I’m not trying to suggest this is always the case.
But, inflation stayed relatively flat throughout most of Trump’s term, which strongly suggests that his tariffs were not inflationary.
And again, nobody has posted a viable economic plan that’s devoid of tariffs & sanctions as it relates to China which is really the only country that matters these days.
It’s easy to case tariffs & sanctions as bad, but it’s quite another matter to come up with a real economic plan that doesn’t use them in any form and would maintain our ability to manufacture strategic goods here at home or to friendly nations. It’s a very difficult nut to crack, and all I’m pushing back on is the notion that tariffs and sanctions have no place in modern international trade.
Tariffs protect highly skilled workers. The gov needs tariffs and higher wages in order
to cut debt, along with some help from the Fed. When the economy is bad co cut
payroll and wages to survive. Unions strikes create chaos. When the economy is good it lift all workers. Will the economy be good in 2025 : no. It’s not ready to takeoff.
Good thing that I got out of IT 17 years ago. I haven’t seen any tariffs protecting all sorts of highly skilled IT jobs from H1-B visas.
IT has been slowly sold out just like manufacturing jobs have been for the last 40 years.
The net result is America is weaker.
I think you have it backwards. Highly skilled jobs don’t need tariffs. It’s the low skill jobs it attempts to protect because those can be done by anyone anywhere with very little education and training (ie manufacturing jobs dominated by unions). The other thing it protects is unprofitable agriculture (eg sugar production here vs elsewhere than has better climate and growing conditions).
As far as cutting debt goes, the fastest way to cut debt is to cut spending.
The Chinese like to play video games online. No worries.
If Ford, homebuilders and other sector switch to survival mode — after fancy gov
experimentation bled them — SPX on Tues Dec 31 might close below 2022 high,
possibly between 4,300 and 4,600. 2025 might be a bad year too, but 2025 might end above 4,800.
Since sanctions do not work, and we know it well by now, I am on the record here suggesting, to the Kamala-Cupcake regime, that the USA MUST SANCTION ITSELF, TOO!
It only makes sense because everything (EVER-EEEE_THANG) is for optics and the USA must show its strength and resilience that there ain’t “no sanctions that the USA CANNOT HANDLE!”
Let’s start with Nvidia chips: anyone associated with Trump will not be allowed to use Nvidia Chips.
However, it will be allowed, if a Trump SHELL COMPANY BUYS them in Singapore, because technically>>>> Singapore is not on the Sanctions list.
WITH USA LAWYERS, who also happen to be MOST POLITICIANS there is NOTHING that can HOLD US BACK. THE “RULE OF LAW” always, ALWAYS, prevails!
The adherence to US LAWS WILL BE UPHELD and everyone will be cleverly proud to be AMERICAN!
Aw(wwwww)! He shouldn’t have done it!
The 1M Dow has a large buying tail, the largest bar since Oct 2023, on lower vol. It’s still below July high, after rising above, triggering a new all time high. It might surf on NVDA to 42K, or close on Fri as a Hanging Man, waiting for Sept confirmation.
CL 1D Aug 27 is down 0.23%. Dozen oil tanks burning ==> fake news !
Meanwhile…
NZ is running out of gas – literallyThis country is collapsinghttps://fasteddynz.substack.com/p/nz-is-running-out-of-gas-literally
Edit – See how this is affecting dairy farming….
Lebanon ran out of gas.
Yes — and they are on life support from the IMF https://www.thenationalnews.com/business/economy/2022/04/07/lebanon-on-the-right-track-as-3bn-imf-deal-struck-prime-minister-says/
1W CL Crude oil futures is slightly < July 2006 high @78.40. Will CL breach it on the way to 90, or drop to 50/40.
Sept rates cut. Dozens oil tankers near Basrah, between Iran and Iraq, are blowing up tonight, after Iran’s chief of staff threats.
And after the Hooties blew up an oil tanker in the red sea.
Like Camila makes any decisions other than what knee to get down on first
Ten percent for the big guy.
In 1967, after Abdul Nasser closed the Suez canal, Onassis became the richest man
in the world. He married a gold digger. After Onassis death she collected diamonds.
.
Self made man. Lol.
“Sanctions don’t work”
So is this similar to a child that won’t listen, even after making them sit in the corner and other measures, so you throw up your hands and say just “do what you want”?
Do you have an idea how to enforce controls over technology that you don’t want to share with another country? First strike them?
Virtually every important technology has gotten out including really important ones like the Atomic Bomb. The only question is ‘how soon will it get out’.
If you think about it from China’s side, a quick invasion of Taiwan and it’s all over for the west. You don’t even need to succeed since the chip plants will all self destruct under threat of capture or via direct missile hit. That would leave China as pretty much the ONLY manufacturer of modern chips since everyone else relies on Taiwan now (US would likely take 5+ years to build a single plant) and the Chinese are knocking on the door of 3 nm…
Mt Meiron is 8km from Lebanon. NVDA is 20km. If Bibi/Nasrallah don’t settle
their differences Hezbollah might target NVDA . There is hope that Nasrallah will not raid QQQ assets in Israel.
Of course the buyer on the other side of that crypto transaction could be the NSA.
In a globalized network of computers, borders don’t really apply.
China is in it to win for the all of people, the US has been in it to win for some of the people. Guess who will win the big game in the long run.
hahaha. Xi is in it to win it for the CCP ruling class.
https://press-files.anu.edu.au/downloads/press/n4267/html/ch01.xhtml
CHINA has always been capitalist and world traders run by a mandarin class. mao’s little temper tantrum barely lasted a few bad nights and days in chinese history…………
3000 years of the Emperor consolidating power to the center vs. the provinces / warlords. Ebb and flow. If the peasants don’t eat, the warlords. If the warlords create more havoc, back to the emperor. Markets help to feed the peasants and support taxation for armies. Corporate America and Deep state have approximated a similar model now.
In 1932 FDR, a top 1%, promised to protect the forgotten men. After WWII, in the 1940’s/ 50’s, Truman kept the boys in Europe, Korea and China to avoid adding millions to the unemployed and high veteran payments, adding billions to WWII gov debt. In 2025 Kamala Harris plans to build 3,000,000 Levittowns in the flyover and the suburbs to reduce prices and keep the “new boys” employment.
This is one Chinese guy trying to make a buck. I don’t think it is relevant to how China goes about developing AI. But because it’s WSJ read by political “elites”, it will be panic followed by ban.
Self driving a.k.a robo-taxis are a reality in China before Elon has a prototype.
I have to laugh when I read the language of narcissists in foreign policy: “must”, “demand”, “compel”, “insist”.
“If he responds,”…
I wouldn’t hold my breath.
This line stood out for me:
“The parties to the contract are identified only by a series of letters and numbers and the buyer pays with cryptocurrency.”
Any idea which cryptocurrency they are using?
Dogecoin 😉
The Dow made a new all time high. Will NVDA send QQQ to July 16/17 gap, or gap lower in a downward pressure. Rate cuts ??
Oops, they squeezed the toothpaste tube, and it squirted out the other side…..
Tim Walz says this is fine. It’s just sharing.
It is fine.
Buyers and sellers on a market arriving at win-win deals; without trashy non-contributing idiots meddling; always are.
NVIDIA for the time being makes the overall best performing chip for many currently fashionable workloads. That they should sell as many of them as the market will bear while that lasts, is exactly that: Fine. It is ANY other turn of events which is, definitionally, NOT fine.