US govt plugs gap in advanced chip exports to Chinese entities
Washington D.C. ., June 1
,: The US Commerce Department has issued a new guidance closing a potential loophole that could have led to the export of advanced AI chips to subsidiaries of Chinese firms located outside of China, Reuters reported.
These advanced AI chips, like those of Nvidia's Blackwell processors, could have made their way to Chinese entities located overseas thanks to the loophole.
The Commerce Department had announced in May 2025 that the AI Diffusion rule would not be enforced. This rule was issued in the last days of the Biden administration and governed the export of AI chips, making them contingent on licences from the US government. This was a more expansive framework that introduced a tiered structure for exporting advanced computing ICs. The Trump administration rescinded the move as it deemed it an obstruction to US innovation.
It is not yet clear how many of these chips were exported to Chinese firms, but Reuters cited a person with deep supply-chain knowledge saying it could be hundreds of thousands of chips.
The Bureau of Industry and Security (BIS), in its guidance, said licences will be needed for export of these advanced chips to entities whose headquarters are in China.
The Reuters report quoted former State Department official Chris McGuire, an expert on technology and national security, who said in a social media post on Sunday that the loophole allowed the overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license. "This is a HUGE problem," he said.
A former State Department official Chris McGuire, in a post on X, said that the reason BIS had to issue the guidance is because of the non-enforcement of certain export controls that potentially and inadvertently allowed Chinese companies to both buy Nvidia Blackwell chips and make AI chips at TSMC, all legally and without a license.
"Chinese companies have been buying these chips, very likely at scale," McGuire said.
He pointed to another loophole that has been kept open.
"This statement does NOT say that BIS will enforce the parts of US regulations requiring TSMC to do enhanced due diligence on AI chip orders. This is a massive loophole that still needs to be closed," McGuire added.
— ANI
Reader Comments
Interesting how both administrations keep flip-flopping on chip export rules. The Biden-era controls were too strict, Trump rescinded them, now they're adding restrictions again. This ping-pong game creates massive uncertainty for global supply chains. India should use this chaos to position itself as a stable, neutral hub for semiconductor manufacturing.
Hundreds of thousands of chips going to Chinese firms through loopholes? That's a massive leak! 🤯 The US has every right to protect its tech, but the constant regulatory flip-flopping just pushes companies to find workarounds. India needs to learn from this - clear, consistent policies are key to attracting investment.
This is why India should focus on building strategic partnerships not just with the US but also with Japan, South Korea, and the EU on chip technology. Don't put all eggs in one basket. Also, I'm concerned about how this affects TSMC - they're caught between a rock and a hard place. Indian companies supplying to TSMC should be prepared for more regulatory turbulence ahead.
Respectfully, while I understand US concerns about Chinese military applications, this kind of export control is ultimately counter-productive. It hurts US companies like Nvidia more than it hurts China, which will just develop its own chips. India should be careful - we need to balance our strategic autonomy with technology access. Not an easy task, but necessary.
Finally, someone is actually enforcing something! For too long companies have been finding ways around export controls. But the bigger question is - who's monitoring what happens to these chips once they reach their destination? Indian authorities should take note - we need better tracking of sensitive
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.