In an attempt to combat alleged semiconductor smuggling into China, President Donald Trump’s administration intends to limit shipments of AI chips from companies like Nvidia Corp. to Malaysia and Thailand.
According to persons familiar with the situation, a proposed regulation from the Commerce Department aims to stop China, to whom the US has essentially prohibited shipments of Nvidia’s cutting-edge AI chips, from acquiring such components through middlemen in the two Southeast Asian countries. The individuals, who asked to remain anonymous in order to reveal private talks, stated that the regulation is not yet completed and may yet change.
According to the persons, officials intend to combine an official revocation of worldwide restrictions from the so-called AI diffusion regulation with the constraints in Malaysia and Thailand. Tech firms like Nvidia and US allies objected to that approach near the conclusion of President Joe Biden’s tenure. In order to address smuggling concerns and improve insight into important markets, Biden officials created a 2023 policy that would keep Washington’s semiconductor limitations targeting China, which were first implemented in 2022 and have since been increased many times, in place. The legislation would also apply to more than 40 other nations.
In all, the rule would be the first official step in Trump’s pledge to restructure his predecessor’s AI dissemination policy. In May, the Commerce Department said that it will replace the Biden rule with its own “bold, inclusive strategy.” But according to the sources, the proposed proposal is far from a complete replacement. It doesn’t address issues like security requirements for using US chips in data centers abroad, which is a contentious issue with significant implications for the Middle East. Whether Trump administration authorities will eventually control the export of AI chips to a larger group of nations than only Malaysia and Thailand is uncertain.
A request for comment from the Commerce Department was not answered. Other than what Secretary Howard Lutnick informed Congress last month, the agency has not provided many details regarding its regulatory vision: During his congressional testimony, he stated that the United States will “permit our allies to purchase AI chips, provided that they are operated by an authorized American data center operator, and the cloud that touches that data center is an authorized American operator.”
The leading manufacturer of AI processors, Nvidia, declined to comment, and representatives for the governments of Malaysia and Thailand did not reply. Nvidia CEO Jensen Huang has previously stated, in general terms without mentioning any specific nation, that there is “no evidence” of AI chip diversion. Thailand said it is awaiting specifics in response to previous Bloomberg inquiries regarding restrictions aimed at reducing smuggling concerns, while Malaysia’s Ministry of Investment, Trade, and Industry stated that clear and uniform laws are crucial for the tech industry.
For years, Washington officials engaged in debate over which nations should be allowed to import American artificial intelligence chips and under what circumstances. Before China can present a strong alternative, US authorities want the world to develop AI systems using American technology, and the world wants Nvidia hardware. However, US authorities are concerned that if such semiconductors depart American and allied ports, they may somehow end up in China or that Chinese artificial intelligence firms may profit from remote access to data centers located outside of Asia.
A major area of concentration is Southeast Asia. According to trade data, semiconductor exports to Malaysia have increased recently, and companies such as Oracle Corp. are making significant investments in data centers there. Malaysian authorities have promised to carefully examine those shipments in response to pressure from Washington, but the Commerce Department’s proposed regulation suggests the US is still concerned.
Several steps will be taken as part of the export restrictions on Malaysia and Thailand in order to relieve pressure on businesses who have major operations there, according to persons familiar with the situation. According to sources familiar with the situation, one clause would permit companies with headquarters in the US and a few dozen friendly countries to keep sending AI chips to both countries for a few months after the regulation is released without requesting a license.
People familiar with the situation stated that the export restrictions on Malaysia and Thailand will include a number of steps to relieve pressure on businesses that have major operations there. According to sources familiar with the situation, one clause would permit companies with headquarters in the US and a few dozen friendly countries to keep sending AI chips to both sides without obtaining a license for a few months after the regulation is released.
In order to avoid supply chain interruptions, the licensing requirements would also continue to include some exemptions, according to the individuals. Southeast Asian facilities are used by several semiconductor firms for important production processes, such as packaging, which is the process of encasing chips for usage in devices.
