US Loophole Exploited by China, Trump Rushes to Close It

The US Department of Commerce has closed a legal loophole that allegedly allowed the export of the world’s most advanced chips to Chinese entities abroad. The loophole reportedly enabled the shipment of cutting-edge processors such as Nvidia’s Rubin and Blackwell, and AMD’s MI350x, to Chinese AI subsidiaries based in locations including Malaysia.

According to a Reuters report on Sunday (31 May 2026), the unexpected guidance was issued despite the US having launched extensive efforts to halt semiconductor supplies to China.

It remains unclear exactly how many chips were exported while the Trump administration left the loophole open. However, a chip industry source with deep knowledge of global supply chains estimates that hundreds of thousands of advanced components slipped through.

In the unusual weekend guidance, the US Department of Commerce stated it will enforce strict licensing requirements for the shipment of advanced chips to entities headquartered in China, even if they are located outside the country. The department did not immediately respond to requests for comment on the sudden announcement.

Nvidia and AMD also did not immediately respond to inquiries about the impact of the new policy on their product distribution lines. The US Department of Commerce initially created the loophole when it announced in May 2025 that it would not enforce the AI Diffusion rules issued in the final days of Joe Biden’s administration.

Technology expert and former US State Department official Chris McGuire offered a critical assessment of the regulatory relaxation’s consequences in a social media post on Sunday.

‘This is a VERY BIG problem,’ McGuire said.

McGuire further explained that the legal loophole, once left open, allowed Chinese-owned foreign subsidiaries to purchase advanced chips like Nvidia’s Blackwell without official licences.

‘Chinese companies have purchased these chips, likely on a massive scale,’ he added.

However, a notable exception is that the new rules do not apply retroactively to existing infrastructure. The guidance does not require international data centres to stop using chips already purchased or to cut maintenance services for operational servers.