US Tightens AI Chip Curbs: New Rules Target Chinese Firms’ Overseas Loophole

The United States administration has taken another significant step to curb the advancement of Chinese artificial intelligence (AI) capabilities by imposing stricter export controls on advanced AI chips. The U.S. Department of Commerce has issued a surprise directive restricting the export of cutting-edge AI processors—including Nvidia’s powerful Blackwell chips—to Chinese subsidiaries and affiliated companies operating outside mainland China.

The new guidance was published on Sunday by the Department’s Bureau of Industry and Security (BIS), sending fresh shockwaves through the global semiconductor market.

Millions of Chips Reached Chinese Firms Through a Loophole

According to technology analysts, although Washington had previously prohibited the direct sale of advanced AI chips to mainland China, a major legal loophole remained in place. Chinese AI companies were able to use overseas subsidiaries and affiliates—such as data centers and chip design firms based in countries like Malaysia—to purchase high-end chips directly from U.S. manufacturers including Nvidia and AMD without requiring special licenses.

The U.S. administration reportedly moved swiftly after a confidential policy paper highlighting the loophole was leaked in Washington. The document warned that “the door to chip diversion has quietly opened.” A source with extensive knowledge of the semiconductor supply chain told Reuters that over the past year, hundreds of thousands of high-performance American AI chips may have reached Chinese-linked entities through overseas third-party agents by exploiting this regulatory gap.

Revision to Earlier Policy Approach

The loophole emerged after the Trump administration decided in May 2025 not to enforce the “AI Diffusion” framework introduced during the final days of the Biden administration. That policy contained stricter global controls on access to advanced AI chips and computing resources.

In a statement, a BIS spokesperson said the new guidance was intended to clarify export licensing requirements that have been in effect since 2023.

“We will continue to rigorously enforce export controls to safeguard highly sensitive and advanced U.S. technologies,” the spokesperson stated.

Nvidia’s Position and Remaining Concerns

An Nvidia representative said the new directive would not materially affect the company’s business operations, noting that the U.S. Department of Commerce had already informed the company that export licenses would be required for such sensitive shipments.

Rival chipmaker AMD did not immediately comment on the development.

However, technology security experts believe significant risks remain. Chris MacGuire, a former U.S. State Department official and technology security specialist, argued on social media that while the directive closes one loophole, it leaves another important vulnerability unaddressed.

According to MacGuire, the new guidance does not require additional due diligence by chip manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC) to verify whether chips are ultimately being produced for Chinese front companies or proxy buyers operating under false identities. As a result, concerns remain that advanced semiconductors could still be diverted through disguised procurement networks.

Escalating Technology Rivalry

The latest move reflects Washington’s continuing efforts to restrict China's access to advanced AI computing technologies, which U.S. officials view as strategically important for both economic competitiveness and national security. As export controls become increasingly stringent, the semiconductor industry is likely to face growing scrutiny over supply chains, customer verification processes, and cross-border technology transfers.

DBTech/BMT/OR