Washington D.C. [US]., June 1, (ANI): The US Commerce Department has issued a new guidance closing a potential loophole that could have led to the export of advanced AI chips to subsidiaries of Chinese firms located outside of China, Reuters reported.

These advanced AI chips, like those of Nvidia's Blackwell processors, could have made their way to Chinese entities located overseas thanks to the loophole.

The Commerce Department had announced in May 2025 that the AI Diffusion rule would not be enforced. This rule was issued in the last days of the Biden administration and governed the export of AI chips, making them contingent on licences from the US government. This was a more expansive framework that introduced a tiered structure for exporting advanced computing ICs. The Trump administration rescinded the move as it deemed it an obstruction to US innovation.

It is not yet clear how many of these chips were exported to Chinese firms, but Reuters cited a person with deep supply-chain knowledge saying it could be hundreds of thousands of chips.

The Bureau of Industry and Security (BIS), in its guidance, said licences will be needed for export of these advanced chips to entities whose headquarters are in China.

The Reuters report quoted former State Department official Chris McGuire, an expert on technology and national security, who said in a social media post on Sunday that the loophole allowed the overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license. 'This is a HUGE problem,' he said.

A former State Department official Chris McGuire, in a post on X, said that the reason BIS had to issue the guidance is because of the non-enforcement of certain export controls that potentially and inadvertently allowed Chinese companies to both buy Nvidia Blackwell chips and make AI chips at TSMC, all legally and without a license.

'Chinese companies have been buying these chips, very likely at scale,' McGuire said.

He pointed to another loophole that has been kept open.

'This statement does NOT say that BIS will enforce the parts of US regulations requiring TSMC to do enhanced due diligence on AI chip orders. This is a massive loophole that still needs to be closed,' McGuire added. (ANI)