The United States Department of Commerce issued unexpected guidance on Sunday closing a regulatory loophole that had allowed subsidiaries of Chinese companies based outside China to purchase some of the world's most advanced artificial intelligence chips — including Nvidia's high-end Blackwell processors — without the required export licences.

The Bureau of Industry and Security (BIS), the Commerce Department body responsible for export controls, clarified that licence requirements for advanced AI chips apply to all entities whose parent company or headquarters is based in China, regardless of where those subsidiaries are physically located. The guidance pointed to countries such as Malaysia as locations where Chinese AI firms had established overseas operations that may have exploited the gap. Estimates from one chip industry source with deep supply-chain knowledge suggest that hundreds of thousands of chips may have been exported through this route during the roughly year-long window in which the loophole existed.

The opening emerged in May 2025 when the Trump administration announced it would not enforce the so-called AI Diffusion rule, a sweeping globe-spanning licensing framework developed in the final days of the Biden administration that would have imposed export caps on advanced chips for all but the closest US allies. Nvidia, the world's most valuable chip company, had been among the tech firms that pushed back against the Biden-era framework, arguing it threatened innovation and cross-border collaboration. The Trump administration scrapped the rule citing burdensome regulations and potential harm to diplomatic relations. An anonymous paper circulating in Washington ahead of the Sunday guidance warned that