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The US Commerce Department has issued new guidance closing a loophole that allowed advanced AI chips to reach Chinese companies through their subsidiaries located outside China.

Getting into it: In an unusual weekend notice posted Sunday, the department’s Bureau of Industry and Security (BIS) clarified that its licensing requirements for exporting advanced AI chips apply to any business headquartered or with a parent company in China, even when the subsidiary buying the chips sits in another country. Asked directly whether it was still enforcing preexisting license rules after the Trump administration scrapped a Biden-era export framework, the bureau said, “The answer is yes,” adding that the rules have been in place since 2023 and that it would keep enforcing controls “rigorously to safeguard critical American technology.”

The concern was that some of America’s best chips, like Nvidia’s top-of-the-line Blackwell processors, had been quietly flowing to overseas arms of Chinese AI firms in places like Malaysia. A paper that circulated in Washington warned that “the floodgates have quietly opened,” and some believe that “hundreds of thousands” of advanced chips may have slipped through during a roughly year-long gap. That gap came after the Trump administration announced it would not enforce the AI diffusion rule that the Biden administration previously set in stone.

Critics say the fix, while welcome, may have come too late. Chris McGuire, who handled tech policy at the State Department under Biden, called the gap “a HUGE problem,” noting that “Chinese companies have been buying these chips, very likely at scale,” and that because the regulations were never updated, “all of this was legal.” He said the clarification makes Blackwell shipments to Chinese-headquartered firms “illegal again, which is good,” but warned the full extent of the damage won’t be clear until officials assess how many chips already got through.

Nvidia, for its part, said the guidance changes nothing for the company, insisting it already requires licenses to ship controlled products to Chinese-headquartered firms.