The United States has moved to tighten restrictions on the export of advanced artificial intelligence chips, issuing new guidance aimed at preventing Chinese companies from obtaining cutting-edge semiconductors through subsidiaries based outside China.
The US Department of Commerce on Sunday issued guidance clarifying that export licence requirements for advanced AI chips also apply to entities headquartered in China, even when those entities operate from other countries.
The move is designed to close what officials and industry experts describe as a loophole that may have allowed some of the world’s most advanced AI processors, including those produced by Nvidia, to reach overseas subsidiaries of Chinese firms in locations such as Malaysia despite broader US export restrictions.
The guidance was published by the Commerce Department’s Bureau of Industry and Security (BIS) after a paper circulating in Washington warned that “the floodgates have quietly opened” for such exports. The document, dated Friday and seen by Reuters, did not identify an author.
It remains unclear how many advanced chips may have been exported through the loophole. One semiconductor industry source with extensive supply-chain knowledge estimated that the figure could be in the hundreds of thousands.
In its guidance, BIS said it would enforce existing licence requirements for advanced chips when dealing with companies headquartered in China, regardless of where those companies are located.
“BIS issued guidance clarifying export license requirements that have been in place since 2023,” a bureau spokesperson said. “BIS will continue to enforce export controls rigorously to safeguard critical American technology.”
The guidance does not alter restrictions already imposed on Nvidia. A company official said the firm had already been subject to licence requirements under instructions previously issued by the Commerce Department and could not ship the affected chips without approval.
Advanced Micro Devices, another major supplier of AI chips, did not immediately respond to requests for comment.
The issue emerged after the Trump administration announced in May 2025 that it would not enforce the AI Diffusion Rule introduced during the final days of the Biden administration. That rule established licensing requirements governing global access to advanced AI chips.
Former US State Department official Chris McGuire said the policy gap allowed overseas subsidiaries of Chinese firms to purchase Nvidia’s advanced Blackwell processors without a licence.
“This is a HUGE problem,” McGuire wrote on social media.
“Chinese companies have been buying these chips, very likely at scale,” he added.
McGuire welcomed the latest guidance, saying it closes the loophole involving overseas subsidiaries. However, he argued that another weakness remains because the new measures do not restore requirements for chip manufacturers such as TSMC to conduct additional checks to ensure advanced AI chips are not ultimately destined for Chinese front companies.
According to McGuire, that issue remains unresolved despite the latest action by US authorities.
Faridah Abdulkadiri
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