- Trump officials spent last week arguing over whether their China chip policy inadvertently created loopholes allowing Chinese companies like Alibaba to legally buy Nvidia Blackwell servers in third countries — prompting an extraordinary Sunday memo from the Commerce Department’s Bureau of Industry and Security.
- BIS’s Sunday advisory asserted that restrictions on AI chip sales to Chinese companies globally “are still in effect” — but some Trump officials and export control lawyers privately said the legal requirement to seek export licenses wasn’t actually enforced before that notice.
- A second potential loophole — that the same May 2025 policy decisions may have also allowed TSMC and Samsung to produce advanced chips for Chinese firms like Tencent — was not addressed by the Sunday memo; BIS is considering additional guidance.
- An anonymous May 29 memo titled “The floodgates have quietly opened” claimed BIS issued a written opinion confirming no license was needed to ship advanced AI chips to Chinese customers; BIS denies this, but says it’s reviewing its records.
What Happened?
An anonymous memo circulated widely across Washington last week, claiming that Trump’s Commerce Department had quietly created loopholes enabling Chinese companies to legally purchase Nvidia’s most advanced Blackwell AI chips through third-country intermediaries. The memo — titled “The floodgates have quietly opened” — alleged that policy decisions made in May 2025, when BIS scrapped Biden’s “AI diffusion rule” without a replacement, effectively left Chinese firms in Singapore, Malaysia, and elsewhere free to buy advanced AI servers without a U.S. export license. The memo set off alarm from the White House to Capitol Hill. BIS responded with a highly unusual Sunday morning advisory declaring that restrictions on AI chip sales to Chinese companies “are still in effect.” It’s unclear whether any prohibited sales actually occurred.
Why It Matters?
AI chip export controls are among the most consequential national-security policies in Washington’s competition with China — and the confusion around them reflects a broader dysfunction. The Trump administration scrapped the Biden-era AI diffusion rule without a coherent replacement, creating a regulatory vacuum that export control lawyers say left ambiguity about what was actually prohibited. A second potential loophole — that TSMC and Samsung may also have been free to produce advanced chips for Chinese clients — hasn’t been resolved. This matters enormously: TSMC previously manufactured chips that ended up at Huawei, China’s top Nvidia competitor. BIS says the foundry due diligence rule was never rescinded; critics say it was effectively nullified by not enforcing the AI diffusion framework that gave it legal force.
What’s Next?
BIS is reviewing its records to determine whether it issued any written opinion confirming the loophole — something it denies but hasn’t fully ruled out. Additional public guidance is expected on the foundry due diligence rule. Congressional pressure is building: Republican Rep. John Moolenaar praised the Sunday advisory, while Democratic Senators Warren and Kim criticized the administration for potentially allowing America’s most advanced AI chips to flow to Chinese companies. Nvidia called the loophole story a “social media story” and said its partners operated as though no loophole existed — but an Nvidia official acknowledged the legal interpretation privately, while noting it applied to server assemblers, not Nvidia’s own direct sales.
Source: Bloomberg
