U.S. closes loophole on advanced AI chip exports to Chinese firms abroad

The Department of Commerce issued guidance on Sunday stating that existing license requirements for advanced AI chips apply to all entities with headquarters or a parent company in China, even when those entities operate outside China. The Bureau of Industry and Security said the clarification responded to questions about enforcement after the previous AI Diffusion framework was not implemented.

A bureau spokesperson stated that license requirements in place since 2023 remain in effect.

Background on the guidance The guidance was posted after an industry paper circulated in Washington describing shipments of high-end chips to overseas subsidiaries of Chinese companies. One chip industry source estimated the number of chips exported through the loophole reached the hundreds of thousands.

The Bureau of Industry and Security said it will continue to enforce export controls to safeguard critical American technology. The new notice does not require data centers already using the chips to stop operations or cut off servicing.

Company responses A Nvidia spokesperson said the guidance reaffirms that the company’s sales and vetting process is correct and that licenses are required to ship controlled products to PRC-headquartered companies. AMD did not immediately respond to requests for comment. A spokesperson for Taiwan Semiconductor Manufacturing Company declined to comment.

“The guidance reaffirms that NVIDIA’s sales and vetting process is correct – consistent with our existing approach, licences are required to ship controlled products to PRC-headquartered companies.”

Former State Department official Chris McGuire said Chinese companies have been buying the chips at scale and that the clarification makes future shipments to China-headquartered companies outside China illegal. McGuire added that the guidance does not address due-diligence requirements for foundries such as TSMC.

The United States has maintained multiple restrictions on high-end technology exports to China as part of ongoing competition in artificial intelligence development.