US Commerce Department Closes AI Chip Loophole Amid Ongoing Tensions
The U.S. Commerce Department discreetly updated its website on Sunday, marking a pivotal shift in policy that addresses a longstanding loophole that has, for the past year, permitted the potential influx of Nvidia’s advanced AI chips to Chinese enterprises via intermediaries in countries such as Malaysia.
The Bureau of Industry and Security (BIS) recently articulated that export licensing stipulations instituted in 2023 will now encompass subsidiaries of China-based firms operating outside their national borders.
This clarification arrives a year after the Trump administration’s abandonment of the Biden-era AI Diffusion rule, which had created an expansive void allowing Blackwell processors to be dispatched without scrutiny.
The Policy Reversal: A Blackwell Shipping Channel Unveiled
The Trump administration’s decision in May 2025 to forgo enforcement of the AI Diffusion rule was presented as a measure to alleviate “burdensome new regulatory requirements.”
However, this action inadvertently left the status of overseas Chinese subsidiaries in limbo. Industry insiders revealed to Reuters that over the past year, hundreds of thousands of cutting-edge AI chips may have been exported through this loophole.
Chris McGuire, a former State Department official involved in these control measures under the Biden administration, asserted via X that Chinese corporations have likely procured these chips en masse, with BIS providing no clear guidance on enforcement, thereby rendering the transactions legal.
New BIS Guidance: Addressing One Loophole, Leaving Others Vulnerable
The BIS has now stated that it will enforce licensing requirements on advanced chips destined for any entity with headquarters in China, irrespective of the physical location of its offices.
Nvidia has conveyed that this new guidance will not alter its operations, emphasizing that licenses have always been mandated for exports of controlled products to entities based in the People’s Republic of China.
Meanwhile, AMD, another significant player in the AI chip arena, has not yet responded to inquiries from the media.
However, the recent notice still exhibits considerable gaps. Notably, it does not compel data centers that have already procured these chips to cease their utilization or maintenance.
Furthermore, it fails to impose stringent due diligence on TSMC and other manufacturing entities producing these chips on behalf of Nvidia, thereby allowing Chinese front companies to persist in placing orders through Taiwanese channels.
Inconvenient Timing for Nvidia’s Operations in China
This enforcement action occurs at a precarious juncture for Nvidia’s market presence in China. In December 2025, Trump had authorized the sale of the H200 chip to Chinese firms.
Yet, Beijing has increasingly favored domestic AI alternatives from companies like Huawei and Cambricon, resulting in a complete lack of H200 sales since that approval.
As for the Blackwell, Nvidia’s premier chip, it remains off-limits to the Chinese market. The essential question now is whether this prohibition was effectively enforced, a dilemma that Washington seeks to resolve posthaste.
Source link: Timesofindia.indiatimes.com.
