The United States keeps changing how it controls who gets access to the most powerful computer chips on Earth. Or at least it is trying to.
President Trump is said to be scrapping a key Biden-era policy that grouped countries into tiers and placed limits on exports of advanced AI chips.
This approach gives the US more flexibility to negotiate directly with individual governments.
Meanwhile, China is still finding ways to get restricted chips through cloud providers and third countries.
So is this move meaningless? What are the administration’s plans, and why is this a big deal?
Why are chips such a big deal?
Chips are essential for running artificial intelligence, military systems, cloud services, and all kinds of everyday electronics.
They are used to train large AI models and process huge amounts of data. They are essentially the new oil.
All developed economies are investing heavily in chip production, but the US currently leads in design and tools, while Taiwan and South Korea dominate the manufacturing sector.
AI chips like Nvidia’s H100 and A100 are in especially high demand.
These processors power popular AI models like ChatGPT, Gemini, Perplexity, as well as self-driving technology, surveillance systems, defence weapons, and the most advanced tech.
The Biden administration began limiting exports of such chips to China in 2022, citing national security concerns.
The policy was later expanded to more than 40 countries that could help China access banned technology.
The idea was to slow China’s ability to advance its military and AI systems.
Despite the obstacles, China has recently powered through breakthroughs, such as Huawei’s new AI chip that seeks to rival Nvidia’s and its DeepSeek model that matches ChatGPT and the likes.
However, progress beyond the 7nm chip remains stalled due to the restrictions posed by the US.
What was the Biden rule, and why is it being dropped?
The Biden administration introduced a framework called the “AI Diffusion Rule,” which essentially split the world into three groups.
Trusted allies like the UK and Japan were the first group and faced no limits.
A second group, including India, the UAE, and Malaysia, had capped chip access.
China, Russia, and other adversaries were fully restricted. This framework was originally set to take effect on May 15.
But this week, Trump’s team announced that it may not enforce the rule. Instead, it would want to negotiate directly with each country.
The UAE and Saudi Arabia are already preparing to make deals.
The UAE, in particular, has pledged to invest $1.4 trillion in US technology and infrastructure over the next ten years.
In return, it wants guaranteed access to advanced chips.
The Commerce Department said the Biden framework was too complex and bureaucratic.
Trump’s team argues that a simpler policy based on country-by-country deals will support American innovation and allow US companies to lead in AI.
Stocks reacted quickly to this news. Nvidia rose 3.1% after the change was reported.
The Philadelphia Semiconductor Index jumped 1.7% on Wednesday, May 7th.
Is China unable to access these chips?
The short answer is no. Even with the export bans, Chinese companies are finding ways to access restricted hardware.
Some lease cloud services in countries like Malaysia. Others go through grey-market suppliers and intermediaries.
A report by SemiAnalysis says nearly half of Johor’s planned data center capacity in Malaysia will include AI processors like Nvidia’s by 2027.
These workarounds are hard to track. Nvidia’s advanced chips are manufactured by TSMC in Taiwan.
According to The Economist, Taiwan exported $3.6 billion worth of GPUs to Malaysia in the first quarter of 2025, almost the same as all of 2024. Shipments in March alone tripled to nearly $2 billion.
Some chips are smuggled. They are mislabeled, routed through multiple countries, and passed through shell companies.
Research estimates that smuggled US chips may account for 10-50% of China’s AI model training power.
Singapore, a major tech hub, has also come under scrutiny. In February, police arrested three men linked to the sale of $390 million worth of servers with Nvidia chips.
The equipment was sent to Malaysian firms. It’s unclear where it ended up.
US authorities say enforcement is difficult and often slow.
The Bureau of Industry and Security has just one officer overseeing export controls for all of Southeast Asia and Australasia.
What does Trump’s new approach mean?
Trump wants to keep China locked out, but offer flexibility to others. The new plan is expected to focus on countries that can be strong partners in the AI race.
Instead of treating everyone the same, the US would reward countries that align with its interests and punish those seen as helping China bypass rules.
Malaysia and Thailand may face more scrutiny. The US believes they are key stopovers for chips going to China.
The Trump administration plans to increase pressure on these routes.
At the same time, countries like the UAE and Saudi Arabia are gaining leverage.
They are investing heavily in US tech and want better access to American chips.
Oracle is already expanding its data center network in Malaysia, and could benefit from the shift in policy.
Without the AI diffusion limits, Oracle can now grow faster in regions that were previously restricted.
This is a big win for tech companies overall.
Nvidia has consistently opposed the Biden rule, arguing that restrictions on other countries would only push them closer to China.
CEO Jensen Huang said this week that China could become a $50 billion AI chip market in the coming years.
The company has said the new approach gives the US a chance to lead in the next industrial era.
What’s the hidden force shaping all of this?
There’s a deeper layer to the chip war that goes beyond sanctions and smuggling.
It’s about where AI models are trained and where that intelligence lives. The idea is called data gravity.
When data and compute infrastructure are clustered in one place, other things follow, such as startups, researchers, investment, and influence.
Countries like the UAE aren’t just buying chips. They’re building AI hubs. By hosting Nvidia-powered data centers, they’re creating the foundation for their own AI ecosystems.
This changes where innovation happens and who controls it.
China is doing the same in its own way. Its goal isn’t just to get chips. It’s to keep AI model development inside its borders and reduce reliance on foreign technology.
That’s why smuggling chips and renting foreign compute power is still worth the effort.
The US shift under Trump is likely to fuel this competition. It opens the door for transactional chip diplomacy, where access depends on deals and alignment.
It also increases the risk of fragmentation. Companies will have to manage dozens of separate export rules and country agreements.
In the end, this isn’t just about semiconductors. It’s about who trains the world’s most powerful machines, where that intelligence lives, and who gets to shape the digital future.
Chips may be the commodity, but what they enable is far more valuable.
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