The US Department of Commerce moved to close a potential loophole that may have led companies to export the world's most advanced chips to subsidiaries of Chinese companies located outside China.

The United States Department of Commerce on Sunday (May 31) moved to close a potential loophole that may have led companies to export the world's most advanced chips - like Nvidia's most sophisticated Blackwell processors - to subsidiaries of Chinese companies located outside China. The unexpected guidance suggests that the US' best AI chips may have been making their way to the subsidiaries of Chinese artificial intelligence firms based in places such as Malaysia despite broader American efforts to starve Chinese firms of semiconductors needed to develop critical AI capabilities. The new guidance was posted on the Commerce Department's website on Sunday after a paper about the loophole circulated in Washington, according to people familiar with the matter. The paper, a copy of which was seen by Reuters, says "the floodgates have quietly opened". Dated Friday, the paper does not list any author. It is unclear how many of the chips have been exported in the year that the Trump administration left the door open. One chip industry source with deep supply-chain knowledge estimated it was in the hundreds of thousands. In the unusual weekend guidance, the department's Bureau of Industry and Security (BIS) said it would enforce licence requirements for advanced chips to entities headquartered in China when the entities were located outside China. “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 new guidance does not change anything for Nvidia, a company official said, adding that it could not ship the chips because the Commerce Department had clearly imposed a license requirement on Nvidia in a letter. AMD, another big producer of sought-after AI chips, did not immediately respond to a request for comment. The Commerce Department created the opening when it announced in May 2025 that it would not be enforcing the AI Diffusion rule issued in the last days of the Biden administration. The rule had licensing requirements governing global access to AI chips. Former state department official Chris McGuire, an expert on technology and national security, 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 licence. "This is a huge problem," he said. "Chinese companies have been buying these chips, very likely at scale." McGuire said the guidance closes the loophole, but leaves another open. That loophole drops the requirement that Taiwan-based TSMC and other foundries do extra due diligence to ensure the high-end AI chips they are making are not for Chinese front companies. He said that issue was not fixed by the guidance. A spokesman for TSMC declined comment. In addition, the new guidance does not require data centers to stop using the chips or cut off servicing of the advanced computing items such as servers.

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