US moves to close loophole that let Chinese firms buy advanced AI chips through overseas subsidiaries

US takes step to halt Nvidia AI chip shipments to Chinese firms outside China

May 31 (Reuters) - The U.S. Department of Commerce on Sunday moved to close a year-old potential loophole it had created that may have led companies to export the world's most advanced chips - like Nvidia's (NVDA.O), opens new tab most sophisticated Rubin and Blackwell processors, as well as AMD's (AMD.O), opens new tab MI350x - to Chinese entities located outside China. The unexpected guidance suggests the United States' best AI chips may have been making their way ⁠to the subsidiaries of Chinese AI firms based in places like Malaysia for almost a year despite broader U.S. 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. 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 unusual weekend guidance, the Commerce Department said it would enforce license requirements for advanced chips to entities headquartered ⁠in China, even when the entities were located outside China. The Commerce Department did not immediately respond to a request for comment. Nvidia and AMD did not immediately respond to requests 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 governed global access to AI chips. Chris McGuire, a technology expert and former State Department official, said in a social media post on Sunday: "This is a HUGE problem." He ⁠said the loophole allowed the overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license. "Chinese companies have been buying these chips, very likely at scale," McGuire said. In another twist, ⁠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. Reporting by Karen Freifeld in New York; Additional reporting by Fanny Potkin in Singapore; Editing by Chris Sanders and Matthew Lewis Our Standards: The Thomson Reuters Trust Principles., opens new tab

U.S. takes step to halt Nvidia AI chip shipments to Chinese firms outside China

The U.S. Department of Commerce on Sunday moved to close a year-old potential loophole it had created that may have led companies to export the world's most advanced chips -- like Nvidia's most sophisticated Rubin and Blackwell processors, as well as AMD's MI350x -- to Chinese entities located outside China. The unexpected guidance suggests that the United States' best AI chips may have been making their way to the subsidiaries of Chinese AI firms based in places like Malaysia for almost a year, despite broader U.S. efforts to starve Chinese firms of the semiconductors needed to develop critical AI capabilities. The new guidance was posted on the Commerce Department's website on Sunday. 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 unusual weekend guidance, the Commerce Department said it would enforce license requirements for advanced chips to entities headquartered in China, even when the entities were located outside China. The Commerce Department did not immediately respond to a request for comment. Nvidia and AMD did not immediately respond to requests 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 governed global access to AI chips. Chris McGuire, a technology expert and former State Department official, said in a social media post on Sunday: "This is a HUGE problem." He said the loophole allowed the overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license. "Chinese companies have been buying these chips, very likely at scale," McGuire said. In another twist, the new guidance does not require data centers to stop using the chips or to cut off service to advanced computing equipment such as servers.

Trump officials fear a loophole let Chinese firms buy Nvidia Blackwells

The gap, officials worry, let Chinese companies acquire banned chips through overseas subsidiaries. New guidance is meant to close it, after the chips may already have moved. The export ban worked on paper and leaked in practice. Trump administration officials are worried that a gap in US rules allowed Chinese companies to legally buy servers fitted with Nvidia's most advanced AI chips, the Blackwell line, by routing the purchases through subsidiaries outside China. The controls aimed at Beijing turned out to have a door left open in Singapore and Malaysia, even as Washington has been moving to cut off China's access to chipmaking equipment through measures like the proposed MATCH Act. The mechanism was a question of where a company is headquartered versus where it shops. Chinese firms such as Alibaba could, in most countries outside China itself, buy systems carrying banned high-end Nvidia GPUs through overseas subsidiaries, because enforcement had not consistently followed the chips to the parent company behind the buyer. The result, by the concern officials are now voicing, was that Chinese companies could acquire Blackwell chips and have AI chips fabricated at TSMC, legally and without a licence. The timing of the gap traces to a rule change. The loophole emerged after the administration's May 2025 revisions to export rules, even though the underlying requirement to license shipments to China-headquartered entities had technically been in force since November 2023. The problem, in other words, was less the absence of a rule than the uneven enforcement of one already on the books. The fix has now been issued. The US put out guidance affirming that its restrictions extend to subsidiaries of Chinese companies located outside China, with the Commerce Department clarifying that licensing requirements apply to any business whose headquarters or parent sits in China. The clarification closes the door the worry was about, but it arrives after a window in which, officials fear, the chips may already have moved. The Southeast Asian routing was not incidental. Singapore and Malaysia have become significant data-centre hubs, which made them natural places for subsidiaries to take delivery of high-end hardware without the purchase reading, on its face, as a shipment to China. Reporting around the crackdown has noted that the enforcement push is now reaching China-linked data centres in the region, the downstream effect of a control regime trying to follow chips past the point of first sale, the same boundary tested by deals like the Qualcomm-ByteDance ASIC arrangement that works around export controls by design. Congress had been pushing on exactly this. On 2 June, Senators Elizabeth Warren and Andy Kim accused the administration of allowing America's most advanced AI chips to reach Chinese companies through stale export rules, putting a partisan edge on what was already an enforcement embarrassment. The senators' framing, that the rules existed but were not applied, matched the technical account of how the gap opened. The pressure is already reshaping China's own chip strategy, pushing its developers away from banned GPUs and towards custom ASICs designed at home, the kind of structural workaround that a single closed loophole does not undo. The episode is a reminder that export controls are only as strong as the corporate-structure tracing behind them. A ban keyed to headquarters is straightforward to write and harder to enforce when buyers operate through a web of overseas entities. The new guidance restates the intent; whether it can claw back chips that have already shipped, or only stop the next ones, is the question the clarification cannot answer on its own.

US moves to close the loophole letting Nvidia's top chips reach Chinese firms abroad

New Commerce Department guidance ties export-licence rules to where a company is headquartered, not where it sits, snaring the overseas units of Chinese AI firms. For about a year, there was a way around America's toughest chip controls, and it was a matter of geography. A Chinese AI company barred from buying Nvidia's best processors at home could, in principle, have a subsidiary in a country like Malaysia buy them instead. On Sunday the US Commerce Department moved to shut that door. The department issued guidance, posted to its website, extending export-licence requirements to advanced chips sold to any entity headquartered in China, regardless of where that entity is physically located. The shift is subtle but consequential: the control now follows the parent company's nationality rather than the address on the loading dock, which is precisely the seam that overseas subsidiaries had been operating in. The chips at stake are the most capable on the market, including Nvidia's Rubin and Blackwell processors and AMD's MI350x. The scale of what may have slipped through is striking. One industry source with deep supply-chain knowledge estimated to Reuters that hundreds of thousands of advanced chips may have reached Chinese-linked entities abroad during the window the loophole was open. That window traces to a specific decision. In the last days of the Biden administration, the Commerce Department finalised the so-called AI Diffusion rule, a sweeping framework for governing where advanced chips could go. In May 2025, the Trump administration said it would not enforce that rule, and the practical effect, on this reading, was to leave the overseas subsidiaries of Chinese firms in an ambiguous position for almost a year. The new guidance closes the ambiguity. It stops short of the most disruptive option. The guidance does not require data centres already running the chips to stop using them, nor does it cut off servicing of advanced computing equipment such as servers. The action is aimed at future flows, not at clawing back hardware that has already shipped, which limits the immediate operational shock while tightening the tap going forward. The move fits a pattern of leakage and patching that has defined US chip policy. Washington has restricted China's access to advanced chips since 2022 and widened the rules repeatedly, yet enforcement keeps running into workarounds, from third-country subsidiaries to outright smuggling. US prosecutors have separately pursued a case alleging that a Thai company helped route Nvidia chips to Alibaba, a reminder that controls written in Washington are only as strong as their weakest border. Nvidia and AMD did not immediately respond to requests for comment, and the companies are caught in a familiar bind: China remains a large potential market, and tighter rules narrow it further. For Beijing, the closure removes one of the cleaner legal routes to frontier silicon, leaving it leaning harder on stockpiles, domestic chips, and the murkier channels Washington is still chasing. The harder part, as ever, is enforcement: a guidance document redraws the line, but it does not police it.

US moves to close potential AI chip sales loophole

The Trump administration is moving to close a potential loophole in U.S. export restrictions, clarifying that a license is needed to sell advanced AI chips to firms with Chinese parent companies even if they are not located in China or another restricted country. The Commerce Department on Sunday issued new guidance about a 2023 licensing rule, saying it had received questions about whether portions of the requirement are still being enforced. The 2023 rule sought to update earlier restrictions on chip exports issued by the Biden administration. However, confusion emerged following the rollout and later recission of the AI diffusion rule, a Biden-era framework that sought to create a tiered system to determine how many advanced AI chips countries could purchase. The diffusion framework, put forward in the final days of the Biden administration, moved some portions of the 2023 rule under its new worldwide licensing regime. But in May, 2025, the Trump administration rescinded the AI diffusion rule. This created questions as to whether some of the earlier measures, such as requiring a license to sell chips to entities with parent companies in restricted countries, are still being enforced. "Because this license requirement predates the AI Diffusion Rule, BIS's [Bureau of Industry and Science's] non-enforcement policy with respect to the destination-based license requirements for these advanced computing items ... applies only to the extent such items are not for entities headquartered in or that have ultimate parent companies headquartered in" restricted countries, the latest guidance said. The Trump administration scrapped the AI diffusion rule following significant pushback from the tech industry. When rescinding the framework last May, BIS suggested it would "have stifled American innovation and saddled companies with burdensome new regulatory requirements." The bureau said at the time that it planned to issue a replacement rule, but nothing has emerged thus far.

U.S. takes step to halt Nvidia AI chip shipments to Chinese firms outside China

The U.S. Department of Commerce on Sunday moved to close a year-old potential loophole it had created that may have led companies to export the world's most advanced chips -- like Nvidia's most sophisticated Rubin and Blackwell processors, as well as AMD's MI350x -- to Chinese entities located outside China. The unexpected guidance suggests the United States' best AI chips may have been making their ⁠way to the subsidiaries of Chinese AI firms based in places like Malaysia for ⁠almost a year despite broader U.S. efforts to starve Chinese firms of the semiconductors needed to develop critical AI capabilities. The new guidance was posted on the Commerce ⁠Department's website on Sunday.

China's Stealth Pipeline For NVIDIA And AMD Chips Now On The Chopping Block, As Washington Targets Foreign Subsidiaries Headquartered In Beijing

China's ongoing ability to access advanced AI chips from the likes of NVIDIA and AMD has remained a hard-to-crack conundrum in Washington for quite some time now. Even so, the Trump Administration now appears to be tightening the proverbial screws on these advanced chips by chopping off a major loophole that has allowed Chinese companies to circumvent US-led export controls. The Trump administration is looking to ban the foreign subsidiaries of Chinese companies from accessing AI chips from the likes of NVIDIA and AMD Back in May 2025, the Trump administration created a loophole of sorts for Chinese companies by declaring that it would not enforce the Biden-era AI Diffusion rules. Instead, the administration had declared at the time that it would specifically work to thwart the global penetration of Huawei's Ascend AI chips, and prevent US AI chips, especially ones from NVIDIA, from being used to train Chinese AI models. Those broad goals, however, then opened a loophole for Chinese companies with foreign subsidiaries, enabling those subsidiaries to buy advanced NVIDIA GPUs to train their parent companies' AI models. According to a chip industry source cited by Reuters, as many as hundreds of thousands of advanced AI chips from NVIDIA and AMD might have reached such Chinese subsidiaries over the past year. Now, however, as per an update posted on the US Commerce Department's website, the US will start enforcing licensing requirements on advanced AI chips, especially for entities that are headquartered in China but physically located elsewhere. Of course, the Trump administration was apparently looking to thwart the China-bound flow of AI chips and GPUs from front companies located in Thailand and Malaysia as early as July 2025. However, no formal advisory had emerged from those nascent efforts at the time. This comes as federal prosecutors recently charged the co-founder of Super Micro Computer and two of his associates for perpetrating a scheme that diverted around $2.5 billion worth of NVIDIA GPUs to China by using a network of front companies to place the initial orders, and then relying on stealth packaging and shipment for China-bound deliveries. Follow Wccftech on Google to get more of our news coverage in your feeds.

US Closes Loophole That Allowed Nvidia, AMD AI Chip Shipments To Chinese Firms Overseas - NVIDIA (NASDAQ:

What Does The Guidance Say? The Commerce Department's new guidance, published on its website, indicates that subsidiaries of Chinese AI firms in countries such as Malaysia have been receiving these advanced chips for almost a year. This development comes despite ongoing U.S. measures to limit China's access to semiconductors vital for AI advancements. The department now intends to impose license requirements for advanced chips on entities headquartered in China, regardless of their location. The loophole emerged when the Commerce Department opted not to enforce the AI Diffusion rule in May 2025, a decision made during the final days of the Biden administration. Expert Explains Significance Of New Guidance Council on Foreign Relations' Senior Fellow for China, Chris McGuire, pointed out in a post on X that this oversight enabled Chinese companies to acquire Nvidia Blackwell chips without a license. However, the new guidance does not mandate data centers to cease using these chips or servicing related computing equipment. "This clarification does make clear that Blackwell shipments to China-headquartered companies outside of China are now illegal again -- which is good, although obviously we have to see how many shipments have already gone to assess how much damage was done," he said. Huang Emphasizes China's Significance As A Market The U.S. government's decision to close this loophole is part of a broader strategy to curb China's access to advanced technology. Nvidia CEO Jensen Huang recently emphasized China's significance as a market, underscoring the complex dynamics at play. Despite export controls, Nvidia's operations in China have remained substantial, with reports suggesting that over 20% of its fiscal year 2026 compute revenue was still derived from China through intermediaries. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Photo courtesy: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

US moves to block Nvidia AI chip sales to Chinese firms outside China By Investing.com

Investing.com-- The U.S. Department of Commerce on Sunday moved to block Nvidia artificial intelligence chip sales to Chinese entities outside China- a loophole that may have been used to bypass U.S. restrictions. The Commerce Department's Bureau of Industry and Security issued a notice on Sunday stating that a license was required to export advanced processors to entities ultimately headquartered in China. Get more insights on U.S. policy and top AI stocks by subscribing to InvestingPro The move indicates that advanced AI chips from NVIDIA Corporation (NASDAQ:NVDA) and AMD (NASDAQ:AMD) may have been supplied to the subsidiaries of Chinese companies based outside the country for nearly a year, despite broader U.S. restrictions on chip sales to China. Washington had left the door open to potential AI chip sales to Chinese entities by not enforcing the Biden administration's "AI Diffusion Rule" in May 2025. The Biden administration had blocked the sale of advanced AI chips to China- restrictions that were tightened by the Trump administration. Trump had loosened some AI chip sale restrictions on China recently, allowing Nvidia to sell its second-most advanced chip to 10 approved entities. But recent reports showed that few sales had been made under the new approvals. China was seen pushing for complete self-reliance in its AI industry, including the development of home-grown chips from companies such as Huawei. AI startup DeepSeek had claimed that its latest models were developed to run on Huawei hardware.