The U.S. Department of Commerce issued guidance to enforce license requirements for advanced AI chips exported to Chinese-headquartered entities, even if located abroad, aiming to prevent indirect shipments to Chinese AI firms via subsidiaries in third countries like Malaysia.
The United States Department of Commerce acted on Sunday, May 31, to address a significant loophole that may have allowed companies to indirectly export advanced artificial intelligence chips to Chinese firms.
According to sources familiar with the matter, a paper circulated in Washington, titled "the floodgates have quietly opened," highlighted that high-value AI chips, such as those produced by Nvidia, were reaching subsidiaries of Chinese AI companies in locations like Malaysia. This circumvented broader U.S. efforts to restrict Chinese access to semiconductors essential for developing critical AI capabilities.
The Commerce Department's Bureau of Industry and Security (BIS) issued weekend guidance clarifying that export license requirements, originally established in 2023, would be enforced for advanced chips destined for entities headquartered in China regardless of their physical location. A BIS spokesperson emphasized that the agency will continue to rigorously enforce export controls to protect critical American technology.
The guidance does not alter the status for Nvidia, as a company official noted that the Commerce Department had already imposed a licensing requirement on Nvidia via a formal letter, preventing shipments. AMD, another major AI chip producer, had not commented at the time of reporting.
The loophole originated from the Trump administration's decision in May 2025 to not enforce the AI Diffusion rule, a regulation from the final days of the Biden administration that governed global licensing for AI chips. Former State Department official Chris McGuire, an expert on technology and national security, observed via social media that the oversight permitted Chinese companies' overseas subsidiaries to acquire Nvidia's Blackwell chips without a license, likely at a large scale.
Importantly, the new BIS guidance does not fix the issue of foundries like Taiwan's TSMC needing to conduct extra due diligence to avoid producing chips for Chinese front companies. Additionally, the guidance does not require data centers to cease using such chips or stop servicing advanced computing equipment like servers.
Meanwhile, Nvidia CEO Jensen Huang has publicly stated that it is unwise to create two separate AI ecosystems, suggesting that the United States and China can both cooperate and compete in this domain
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