The US Department of Commerce has closed a significant sanctions loophole by prohibiting the sale of advanced artificial intelligence chips from Nvidia and AMD to foreign subsidiaries of Chinese companies. On May 31, the Bureau of Industry and Security published a ruling stating that exporting processors to any entities ultimately headquartered in China now requires a special government license.
This move effectively acknowledges that for nearly a year, American tech giants have been able to illegally ship advanced AI equipment to the subsidiaries of Chinese corporations outside of China. This loophole remained open because Washington failed to implement the so-called "AI Diffusion Rule" in May 2025, which was developed by the Biden administration to prevent circumvention of supply restrictions.
US policy regarding technology exports remains highly chaotic. After the initial Biden-era restrictions, Donald Trump’s administration first tightened those restrictions and then dramatically eased them, allowing Nvidia to sell second-tier performance chips to ten approved Chinese contractors. However, the market largely ignored these diplomatic gestures, with reports indicating only isolated transactions occurring under the new permits.
While American regulators work to patch existing gaps in sanctions, China is making a definitive pivot towards total technological independence. The industry is increasingly relying on domestic resources. For instance, DeepSeek, one of China’s leading AI startups, has officially announced that all of its latest neural network models are developed and operate exclusively on domestic equipment from Huawei.
