US moves to block China's 'bypass routes' for advanced AI chips

The United States has tightened its controls on advanced artificial intelligence (AI) chip exports, introducing new guidelines aimed at blocking Chinese companies from obtaining cutting-edge technology through their foreign subsidiaries. The US Commerce Department will now apply export licensing requirements to overseas affiliates of Chinese-headquartered firms, a move that could significantly impact the flow of high-performance chips.

This action is a direct response to concerns that advanced AI chips from manufacturers like Nvidia and AMD might be diverted to Chinese companies operating through subsidiaries in third countries, such as Malaysia. The US has been strengthening its export controls on semiconductors to China to curb its AI capabilities, and this latest measure seeks to close potential loopholes that allow for indirect procurement.

The development underscores the persistent friction between the US and China in strategic technology sectors, particularly in advanced semiconductors. This occurs even as both nations have stated intentions to manage broader economic and trade disputes, as indicated during recent high-level summits.

The new directive addresses a loophole that emerged after the Trump administration decided not to enforce the "AI proliferation rule" introduced late in the Biden administration. This rule had aimed to differentiate restrictions on the overseas transfer of US-made high-performance AI chips and related technologies based on country. Critics had argued that the suspension of this rule created an avenue for Chinese firms to acquire advanced US chips without proper authorization through their foreign entities. One semiconductor industry source estimated that hundreds of thousands of chips may have been exported to China through these channels over the past year.

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This is a huge problem.