The US Department of Commerce issued artificial intelligence (AI) chip export guidelines on May 31 (local time) to fundamentally block chip exports that have been quietly flowing into China over the past year through ambiguous legal interpretations. After President Donald Trump halted the previous Biden administration's AI regulations, advanced chips from Nvidia and AMD were found to have been routed to China via Southeast Asian countries such as Malaysia while new rules were being drafted.
The Commerce Department's Bureau of Industry and Security said Sunday that licensing requirements for advanced AI chip exports apply not only to China but also to entities located outside China. The agency made clear that if a parent company is Chinese, its subsidiaries in other countries cannot purchase US-made semiconductors without government approval.
Foreign media interpreted the unusual Sunday evening release of the guidelines as a reflection of Washington's sense of urgency. Reuters reported that the Trump administration had belatedly recognized the loopholes in export controls. Citing a document obtained from Washington political circles, the news agency described the loophole as having "quietly opened the floodgates" for chip exports.
Even before this announcement, exports of the latest US-made AI chips, such as Nvidia's Blackwell and AMD's MI350X, to mainland Chinese companies were already banned. However, exports to overseas subsidiaries of Chinese firms had remained subject to ambiguous interpretation.
The Biden administration revised the Export Administration Regulations (EAR) in October 2022 to ban exports of AI chips such as Nvidia's A100 and H100 to China, and one year later extended the ban to the lower-performance A800 and H800 chips.
The gap emerged when the Trump administration overturned the final Biden-era regulation. The Biden administration had announced an AI Diffusion Rule, set to take effect in May 2025, which explicitly designated overseas subsidiaries of Chinese companies as regulatory targets.
After the change of administration, however, the US Commerce Department fully withdrew implementation of the AI Diffusion Rule. The rule had drawn controversy for dividing target countries into three tiers and banning chip exports to tier-three countries including China, Russia and North Korea. The Trump administration said it would draft new regulations, arguing that tier-two countries could import Chinese-made chips and harm US companies.
During the year in which new regulations had yet to be put in place, US-made AI chips began flowing into China through third countries such as those in Southeast Asia.
On May 27, Bloomberg reported that Taiwanese prosecutors had detained three suspects and were investigating allegations that they smuggled Nvidia chips into China via Japan. On March 19 of this year, US prosecutors announced they had indicted three people, including a co-founder of Supermicro, on charges of smuggling servers containing Nvidia chips into China through Southeast Asia. Reuters reported that "semiconductor industry sources estimate the number could reach hundreds of thousands."
The US semiconductor industry has pointed out that the US export controls have ultimately caused American firms to lose the Chinese market. At last month's US-China summit, the US side effectively approved the export of Nvidia's H200 chip to China, but Chinese authorities, seeking to strengthen the technological capabilities of their domestic firms, did not accept the offer.
