President Donald Trump is weighing new export restrictions on AI chips from companies like Nvidia to Malaysia and Thailand to curb suspected semiconductor smuggling into China.
While the White House has already banned sales of Nvidia’s H20 chips to China over national security concerns, officials believe further action may be needed. Sources say limiting exports to these Southeast Asian countries could cut off critical alternative pathways through which China acquires US-made semiconductors.
The Commerce Department has reportedly drafted a version of the proposed rule, though it remains under review and has not yet been finalized.
Commerce Department pledges to develop a better strategy to replace Biden’s AI diffusion rule
Sources revealed that the Trump administration could couple the Malaysia and Thailand controls with a formal withdrawal of the global limits defined by the AI diffusion rule, which Biden imposed. During Biden’s term, the government set multiple semiconductor restrictions to fight off smuggling and boost the American chip market. The curbs, however, have since sparked criticism from the country’s trading partners and tech firms like Nvidia.
Trump had promised to scrap some of those restrictions. In May, the Commerce Department said it would replace the diffusion approach with a “bold, inclusive strategy.” Still, some doubt the department’s draft could offer a complete or adequate replacement for the existing framework.
Some have argued that, for starters, their proposal fails to detail security requirements for the international use of US chips, a particularly highly sensitive issue for the Middle East.
However, it’s still uncertain whether Trump officials will eventually expand AI chip export controls beyond Malaysia and Thailand to include a broader range of countries. The agency has only stated that it will permit the nation’s allies to purchase AI chips only if a vetted American data center operator operates them and an approved American operator manages any associated cloud infrastructure.
Nvidia’s Huang says there’s no evidence of AI chip diversion
He commented, “There’s no evidence of any AI chip diversion. These are massive systems. The Grace Blackwell system is nearly two tons, and so you’re not going to be putting that in your pocket or your backpack anytime soon.”
Meanwhile, speaking to Bloomberg on the possible export curbs, the Thai government said it’s still waiting to receive more information, while Malaysia’s Ministry of Investment, Trade and Industry echoed the importance of transparent and stable policies for the tech industry.
So far, tech companies, including Oracle Corp., have doubled down on their data center projects in Malaysia, with chip shipments rising.
Washington had earlier warned the Malaysian government about potential chip diversion, prompting assurances that the matter would be closely scrutinized. However, the US government has not dropped those concerns.
In June, Malaysia’s trade ministry confirmed that a Chinese firm in the country was utilizing servers infused with Nvidia chips for LLM training. It said it collaborated with relevant agencies to see whether the company violated local laws.
The Wall Street Journal also claimed that Chinese engineers arrived in Malaysia in early March carrying suitcases filled with hard drives. According to the report, their objective was to use Nvidia-based servers in Malaysian data centers to develop AI systems.
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