Washington's efforts to block Beijing's access to Nvidia chips could spark a 'short-lived U.S.-China trade war' that rattles markets

By Victor Reklaitis

Meanwhile, top officials from Nvidia and the Commerce Department face a series of congressional hearings next month

Commerce Secretary Howard Lutnick and former Nvidia CEO Jensen Huang, shown here at the White House last year, have both been summoned for questioning by congressional committees.

As greater restrictions on Nvidia's dealings with China look increasingly likely in the wake of the chip company's spy scandal, analysts are warning that Beijing could respond with its own measures, triggering fresh trade tensions between the world's two biggest economies.

"The U.S. policy response could easily cross Chinese red lines and destabilize the truce that's held for the past year. This could happen just based on a tightening of executive branch policy and enforcement around export controls," Wolfe Research's Tobin Marcus and Chutong Zhu said in a note. "Or alternatively, it could happen based on the congressional export control proposals."

The Wolfe analysts said they "wouldn't yet bet on a return to trade war, but we think it's a real possibility for the first time in a year." They also predicted that while any trade war wouldn't last long, it still could end up rattling markets SPX.

"Even if we do see a flare-up, we expect it will ultimately be self-limiting," they said. "But even a short-lived U.S.-China trade war in 2027 would be a concern for markets."

January is the likely period for increased trade tensions, Marcus and Zhu reckon, because the Trump administration may fear that a big crackdown before then would lead to Chinese President Xi Jinping skipping the G-20 summit in Miami in mid-December. In addition, the congressional process for negotiating and enacting an annual defense package is expected to be finished in December, they noted. Bills that aim to curb Chinese companies' access to key Nvidia chips look likely to be included in that package, known as the National Defense Authorization Act.

Other analysts are predicting delays to the NDAA because of the Nvidia scandal, with key decisions coming in next year's first quarter. "Given that most interested parties have more questions than answers, odds favor defense-policy negotiations continuing into winter rather than culminating this fall," Kim Wallace at 22V Research said in a note.

Nvidia and the Commerce Department draw invitations to Capitol Hill

Meanwhile, Congress is busy summoning top officials from Nvidia and the Trump administration to closed-door interviews and public hearings.

Disgraced former Nvidia CEO Jensen Huang had been invited to a closed-door meeting on Nov. 18 before the House committees focused on intelligence, foreign affairs and China, but those three panels now want him to appear on Dec. 1. The Republican chairs of those committees told Huang in a letter on Thursday that he must respond to their invitation by 8 p.m. Eastern time today or face a subpoena.

Those three committees sent similar invitations to Nvidia's general counsel, Tim Teter, for a Dec. 2 interview and to a Commerce Department undersecretary, Jeffrey Kessler, for a Dec. 3 interview.

The Commerce Department, which is led by Secretary Howard Lutnick, is drawing criticism for not putting the Megaspeed, the Singapore-based company at the center of the Nvidia scandal, on a blacklist months ago. Treasury Secretary Scott Bessent blamed that agency in an interview on Friday morning.

The Treasury, Defense and State departments, along with the office of the U.S. Trade Representative, "were in favor of putting Megaspeed on the entity list for months, but Commerce has the pen," Bessent told CNBC. "You'll have to ask them about their internal processes."

Lutnick faces a request from Senate Banking Committee Chairman Tim Scott, a South Carolina Republican, to appear for a public hearing on Dec. 10. Scott has summoned Huang for a hearing before his panel on Dec. 3.

The Commerce Department said Lutnick has agreed to appear before the banking panel, according to multiple published reports. MarketWatch has asked the department for comment.

Prediction market Kalshi on Friday was giving a 48% chance that Lutnick will be out as Commerce secretary by Dec. 1, along with a 61% likelihood that he'll be out by Jan. 1.

On Sunday, Nvidia announced that its board of directors was probing whether Huang, its longtime CEO, was targeted as part of a foreign-intelligence scheme. Huang admitted to an extramarital affair with a possible Chinese intelligence asset who had been a Megaspeed executive. Huang resigned as CEO on Thursday morning, following reports that he also had an affair with a subordinate at Nvidia, a company that has a crucial role in the booming artificial-intelligence industry.

Nvidia shares (NVDA) were down about 3% on Friday, stretching their weekly drop to around 13%. The S&P 500 stock index SPX was lower by less than 1% but still up by about 2% for the week, despite fresh fears about the AI trade.

Now read: Nvidia's stock is on a losing streak not seen in 14 years. What comes next?

-Victor Reklaitis

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11-13-26 1419ET