US Closes Export Loophole for AI Chips to China

The United States Department of Commerce issued guidance on May 31, 2026, to close a regulatory loophole that allowed Chinese companies to acquire advanced artificial intelligence chips through overseas subsidiaries. The Bureau of Industry and Security clarified that licensing requirements for advanced AI processors apply to all businesses headquartered or parented in China, regardless of where the subsidiary is located. This measure specifically targets the flow of high-end hardware, such as Nvidia's Blackwell GPUs, to Chinese-linked entities in countries like Malaysia.

This policy shift follows a May 2025 decision by the Trump administration to rescind the Biden administration's AI Diffusion rule, which officials viewed as an obstruction to innovation. Supply-chain sources suggest hundreds of thousands of chips may have been exported through this gap, although former State Department official Chris McGuire noted that a separate loophole remains regarding due diligence enforcement at TSMC.

In response, Chinese firms are accelerating domestic development. Huawei has introduced the Tau Scaling Law to reduce signal delays as an alternative to traditional semiconductor scaling. While China's AI chip self-sufficiency was 10 percent in 2021, it rose to 41 percent in 2026, with Morgan Stanley projecting it will reach 86 percent by 2030. Nvidia stated that its existing vetting processes already align with the new guidance.