The US Department of Commerce has issued new guidance making clear that its restrictions on advanced AI chip exports apply to all subsidiaries and overseas operations of Chinese companies, not just entities physically located in China. The clarification, issued on June 1, 2026, addresses what officials and policy experts say was a significant gap in Washington's export control enforcement that allowed restricted semiconductor sales to proceed legally for an extended period.

How Did Chinese Companies Exploit the Export Control Loophole?

When President Donald Trump's administration scrapped the Biden-era Framework for Artificial Intelligence Diffusion in May 2025, it removed proposed global licensing requirements for AI chip exports. However, the Commerce Department's Bureau of Industry and Security (BIS) did not immediately clarify whether existing export restrictions still applied to overseas subsidiaries of Chinese firms. This ambiguity created an opening.

According to Chris McGuire, a former State Department official who worked on technology policy during the Biden administration, Chinese companies capitalized on this uncertainty. "Chinese companies have been buying these chips, very likely at scale. And because BIS has not updated export control regulations to clearly state what it IS enforcing, all of this was legal," McGuire stated in a post on X.

The new guidance acknowledges this activity occurred. As McGuire noted, "BIS's statement acknowledges these shipments have been happening when it says companies who bought chips under this loophole don't have to stop using them". This means that chips already delivered to Chinese-owned entities outside China can continue to be used, even though future shipments are now prohibited.

What Chips Are Actually Banned, and Why Does It Matter?

The restrictions target Nvidia's most advanced processors, particularly the Blackwell GPU line, which the company describes as its top-of-the-line offering. These chips are among the most powerful semiconductors available for artificial intelligence work. The US has rolled out numerous restrictions on high-end technology exports to China as Washington and Beijing compete for dominance in AI development.

Nvidia, the world's most valuable chip company, confirmed it was already operating under the clarified rules. "The guidance reaffirms that NVIDIA's sales and vetting process is correct; consistent with our existing approach, licenses are required to ship controlled products to PRC-headquartered companies," an Nvidia spokesperson told Al Jazeera, using the acronym for the People's Republic of China.

Competitors AMD and Intel did not immediately respond to requests for comment. Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures chips on behalf of clients including Nvidia, declined to comment on the guidance.

Steps to Understand How Export Controls Now Work

• Licensing Requirement: Any company seeking to export advanced AI chips to entities with Chinese headquarters or parent companies must now obtain explicit licenses from the Commerce Department, regardless of where the subsidiary is physically located.
• Enforcement Scope: The ban applies not just to direct sales to China, but to all subsidiaries and overseas operations of Chinese-headquartered firms, closing the previous loophole that allowed purchases through foreign entities.
• Existing Inventory Exception: Chips already delivered to Chinese-owned companies before the clarification can continue to be used, but no new shipments are permitted without authorization.
• Verification Process: Companies like Nvidia must vet customers to confirm they are not controlled by Chinese parent companies before completing sales of restricted semiconductors.

Why Did the Trump Administration Reverse Course on This Issue?

The Trump administration had initially scrapped Biden's proposed global licensing framework, citing "burdensome new regulatory requirements" and concerns about harm to diplomatic relations with other countries. Nvidia and other major chip manufacturers had opposed the framework, arguing it threatened innovation and cross-border collaboration.

However, the administration has maintained existing export restrictions on the most advanced chips. In December 2025, Trump announced he would allow Nvidia to sell its H200 chip to China, a significant loosening of controls. The H200 is about six times as powerful as the H20, the most advanced chip previously permitted for export to China, but it remains less capable than the banned Blackwell processors.

McGuire argued that the new clarification, while welcome, came too late to prevent damage. "This clarification does make clear that Blackwell shipments to China-headquartered companies outside of China are now illegal again, which is good, although obviously we have to see how many shipments have already gone to assess how much damage was done," he stated.

The episode highlights the tension between the Trump administration's desire to reduce regulatory burdens on US tech companies and its commitment to maintaining strategic advantages in AI competition with China. The clarification suggests that the administration intends to enforce existing restrictions, even as it resists implementing new, more comprehensive controls.