The U.S. Department of Commerce has issued new directives to shut down a significant loophole that previously allowed high-end artificial intelligence processors, such as Nvidia’s Blackwell chips, to reach Chinese subsidiaries located outside of China. Concerns had been mounting in Washington after reports suggested that a vast number of these advanced semiconductors were being funneled to branches of Chinese firms in regions like Malaysia. By clarifying existing export license requirements, the Bureau of Industry and Security aims to ensure that technology restrictions apply to Chinese-headquartered companies regardless of their physical location, effectively preventing them from bypassing domestic policy to bolster their AI development.

While this move is intended to tighten supply chain security, experts warn that the issue may not be fully resolved. Former State Department official Chris McGuire noted that while the new guidance addresses the direct procurement of chips by overseas subsidiaries, it fails to impose stricter due diligence requirements on major foundries like TSMC. Consequently, the loophole regarding how these manufacturing hubs vet their customers remains a concern. Furthermore, the updated rules do not mandate that existing data centers dismantle their current infrastructure or cease the maintenance of servers already equipped with these restricted computing components.