US closes loophole that let Chinese AI firms buy advanced chips overseas
The Commerce Department issued new guidance Sunday to block Chinese companies from purchasing advanced Nvidia chips through overseas subsidiaries, closing a gap in export controls that may have allowed hundreds of thousands of processors to reach Chinese firms operating outside China.
The department's Bureau of Industry and Security said it would now enforce licensing requirements for advanced chips when they are destined for entities headquartered in China, regardless of where those entities operate. The move came after a paper circulating in Washington detailed how the loophole had opened.
The gap emerged in May 2025 when the Trump administration announced it would not enforce the AI Diffusion rule from the Biden administration, which had governed global access to advanced AI chips. That decision created an opening for Chinese companies to acquire Nvidia's Blackwell processors and similar chips without a license.
Scale of the problem unclear
One chip industry source estimated hundreds of thousands of advanced chips may have been exported through the loophole during the year it remained open. The exact number exported is not known.
Nvidia said the new guidance does not change its operations, noting the Commerce Department had already imposed licensing requirements on the company through a separate letter. AMD, another major AI chip producer, did not respond to requests for comment.
Remaining gaps in controls
The new guidance does not address all export control vulnerabilities. Foundries like Taiwan-based TSMC are not required to perform additional due diligence to verify that advanced chips they manufacture are not destined for Chinese front companies.
The guidance also does not require data centers to stop using chips already in circulation or cut off servicing for advanced computing equipment like servers.
For operations professionals managing supply chains or technology procurement, the tightened restrictions mean closer scrutiny of chip sourcing and vendor locations. Companies should review whether their suppliers have proper licensing and verify the jurisdictional headquarters of any chip manufacturers or distributors in their supply chain.
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