On October 12, Reuters reported that the Biden administration is considering taking steps to close a loophole that currently allows Chinese companies access to American artificial intelligence (AI) chips through their overseas units. This move comes after the United States imposed new restrictions last year on the shipment of AI chips and chipmaking tools to China, aimed at impeding China’s military advancements. The existing rules are set to be tightened in the coming days, and it is speculated that measures to close this loophole might be included in the new restrictions.
In the initial round of restrictions, the Biden administration had allowed overseas subsidiaries of Chinese companies unrestricted access to the same semiconductors, creating a scenario where these chips could be easily smuggled into China or accessed remotely by users based in China. Reports from June revealed that the very chips prohibited by U.S. regulations could still be purchased from vendors in Huaqiangbei, a renowned electronics area in Shenzhen, China.
Efforts to close this loophole highlight the challenges faced by the Biden administration in cutting off China from top AI technology and the complexities of enforcing comprehensive export controls. Greg Allen, a director at the Center for Strategic and International Studies, pointed out that Chinese firms have been acquiring chips for use in data centers abroad, with Singapore serving as a significant hub for cloud computing.
While it is against U.S. law to ship these AI chips to mainland China, monitoring such transactions is proving to be immensely challenging. China-based employees can legally access chips located at foreign subsidiaries remotely. Hanna Dohmen, a Research Analyst at Georgetown University’s Center for Security and Emerging Technology (CSET), emphasized the lack of clarity on the extent of this problem.
The United States has been actively working to curb the growth of China’s AI capabilities, particularly those supporting the development of unmanned combat systems in the military sector. CSET’s report in June 2022 revealed that a majority of AI chips procured through Chinese military tenders were designed by U.S.-based companies such as Nvidia, Xilinx, Intel, and Microsemi.
To address this issue, Washington has been closing various other loopholes that allow AI chips to enter China. In August, Nvidia and AMD were instructed to limit shipments of AI chips not only to China but also to other regions, including select countries in the Middle East. The new rules on AI chips expected this month are likely to apply similar restrictions more broadly to all companies in the market.
However, the situation regarding Chinese parties accessing U.S. cloud providers like Amazon Web Services, which offer the same AI capabilities to their customers, remains unclear. The Biden administration is reportedly grappling with this issue, with Timothy Fist, a fellow at the Washington-based think tank Center for a New American Security, highlighting the lack of regulations governing how these chips can be accessed globally.
the Biden administration’s efforts to close the AI chip loophole underscore the intricate challenges in regulating technology exports and preventing unauthorized access, especially in the ever-evolving landscape of artificial intelligence and global supply chains. The situation continues to be fluid, with policymakers working to strike a balance between security concerns and international technological cooperation.