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Commerce Dept Cuts Off China's Offshore Chip Purchases

4 sources tracking this story
nvidia amd china ai chips chip-exports us-china-ai

Key insights

  • The loophole originated from the Trump administration's May 2025 decision not to enforce the Biden-finalized AI Diffusion rule, creating a year-long enforcement vacuum.
  • A US industry official estimates hundreds of thousands of Nvidia Blackwell and AMD chips reached Chinese-affiliated overseas buyers during that window.
  • Malaysia was specifically identified as a primary routing country where Chinese AI firms established subsidiaries to receive restricted chips.

Why this matters

The loophole traced to the Trump administration's May 2025 decision not to enforce the Biden-era AI Diffusion rule, creating a roughly year-long window that a US industry official estimates allowed hundreds of thousands of Nvidia Blackwell and AMD chips to reach overseas subsidiaries of Chinese AI firms, with Malaysia named as a primary routing country. The new Commerce Department guidance closes that specific path but does not require removal of already-deployed chips, leaving substantial Chinese-controlled compute operating outside US oversight permanently. A second gap remains: TSMC and other foundries face no new due-diligence obligations for high-end chips that could still route to Chinese front companies through other channels. The 'hundreds of thousands' estimate and the weekend timing of the guidance both signal that enforcement urgency is accelerating even as policymakers acknowledge the compute already deployed cannot be recalled.

Summary

The Commerce Department closed a loophole Sunday that let overseas subsidiaries of Chinese firms buy Nvidia Blackwell and AMD MI350x chips without a license. The gap opened when the Trump administration left Biden's AI Diffusion rule unenforced, letting Chinese subsidiaries in Malaysia stock up. One industry source estimates hundreds of thousands of chips shipped before the guidance landed. Essentially: (Nvidia, AMD) chips flowed to Chinese offshore subsidiaries for a year with no license required. - New exports to those entities now require Commerce Dept licensing. - Already-installed chips face no removal or shutdown requirement. - The enforcement gap ran roughly a year before being closed. The guidance tightens controls going forward; chips already deployed remain in the field.

Potential risks and opportunities

Risks

  • Nvidia and AMD face potential shareholder pressure if it emerges their compliance teams had visibility into Chinese offshore subsidiary purchases during the enforcement gap and took no action.
  • Hundreds of thousands of chips already deployed in Malaysia-based data centers could accelerate Chinese AI model training timelines, partially undercutting the intended effect of the AI Diffusion rule.
  • Other Chinese-affiliated entities may rush to complete chip purchases before stricter enforcement fully takes hold, creating a secondary accumulation window in the near term.

Opportunities

  • Export compliance software vendors (Descartes Systems, Visual Compliance) gain urgency-driven budget at Nvidia and AMD as both companies need to tighten distributor and subsidiary screening processes.
  • Countries competing with Malaysia for data center investment (Vietnam, Thailand, Indonesia) can market themselves as cleaner-compliance alternatives for hyperscalers building capacity outside China.
  • U.S.-based cloud customers (Microsoft, Google, Amazon) gain relative compute advantage as Chinese offshore AI infrastructure faces new licensing friction and potential supply delays.

What we don't know yet

  • How many chips actually moved during the gap; the 'hundreds of thousands' figure is a single unnamed industry source estimate, unverified as of May 31, 2026.
  • Whether the new license requirement applies to purchase contracts signed before Sunday's guidance but not yet shipped.
  • The specific Malaysian data center operators that housed Chinese subsidiary hardware are unnamed in all public reporting to date.

What others are reporting

Coverage cluster as of 2h after publish

  1. Reuters Read →

    Wire source with the 'hundreds of thousands' chip estimate from a US industry official and the detail that a separate TSMC foundry-level due-diligence gap remains unaddressed.

    The floodgates have quietly opened.
  2. Benzinga Read →

    Traces the loophole to the Trump admin's May 2025 non-enforcement decision on the AI Diffusion rule and adds CFR expert commentary on what the guidance does and does not prohibit.

    This clarification does make clear that Blackwell shipments to China-headquartered companies outside of China are now illegal again.
  3. Free Malaysia Today Read →

    Explicitly names Malaysia as the primary routing country where Chinese AI firms established subsidiaries to receive restricted chips, flagging the Southeast Asian compliance stake.

Originally reported by cnbc.com

Read the original article →

Original headline: U.S. Commerce Dept Closes Loophole Allowing Chinese Firm Overseas Subsidiaries to Buy Nvidia Blackwell and AMD AI Chips Without License