US Closes AI Chip Export Loophole Targeting Chinese Firms’ Overseas Subsidiaries — But Gaps Remain
Washington Acts to Plug AI Chip Export Gap
The US Commerce Department has issued new guidance requiring export licences for advanced AI chips — including Nvidia’s Blackwell processors — sold to overseas subsidiaries of Chinese companies, closing a loophole that may have allowed hundreds of thousands of chips to reach Chinese entities without authorisation.
The guidance, issued by the Bureau of Industry and Security (BIS), mandates that any entity headquartered in China must obtain a US government licence before receiving such chips, regardless of where its subsidiary operations are located.
How the Loophole Emerged
The gap opened after the Trump administration rescinded enforcement of the Biden-era AI Diffusion Rule in May 2025. That rule, introduced in the final days of the Biden administration, had established a tiered licensing framework governing the export of advanced computing integrated circuits.
The Trump administration abandoned enforcement, characterising the rule as an obstacle to US innovation. The decision inadvertently created a regulatory blind spot that Chinese firms appear to have exploited through their overseas subsidiaries.
A person with deep supply-chain knowledge, cited by Reuters, estimated that hundreds of thousands of chips may have been exported to Chinese-linked entities under these conditions.
Expert Warns of Scale and Severity
Former State Department official Chris McGuire, a specialist in technology and national security, described the situation in stark terms. Writing on X, McGuire said the loophole had legally permitted Chinese companies to purchase Nvidia Blackwell chips and manufacture AI chips at TSMC — all without a licence.
“Chinese companies have been buying these chips, very likely at scale,” McGuire wrote. “This is a HUGE problem.”
A Second Loophole Remains Open
McGuire cautioned that the new BIS guidance does not fully resolve the vulnerabilities in the export control regime. A significant gap persists around TSMC’s due diligence obligations on AI chip orders.
“This statement does NOT say that BIS will enforce the parts of US regulations requiring TSMC to do enhanced due diligence on AI chip orders,” McGuire warned. “This is a massive loophole that still needs to be closed.”
The disclosure raises broader questions about the coherence of Washington’s semiconductor export strategy at a moment when the US-China technology rivalry is intensifying — and when enforcement gaps, however brief, carry significant strategic consequences.
