U.S. Representative Bill Foster has announced plans to introduce legislation aimed at preventing the smuggling of advanced artificial intelligence (AI) chips into China, a practice that violates existing export control laws. The proposed bill seeks to implement on-chip location verification mechanisms to ensure that these chips function only within authorized regions.

Foster's initiative responds to reports indicating that, despite export bans imposed by previous administrations, advanced AI chips from companies like Nvidia continue to reach China. These chips are crucial for AI development and have potential military applications, raising significant national security concerns. Foster, leveraging his background as a particle physicist and chip designer, emphasizes the feasibility of such location tracking technologies, citing existing implementations by companies like Google. The legislation would direct the U.S. Commerce Department to establish relevant regulations within six months.

The urgency of this measure is underscored by reports of large-scale smuggling operations and the associated national security risks. The proposal has garnered bipartisan support, with lawmakers from both parties acknowledging the need for stricter controls. This legislative effort also addresses recent revelations about China's DeepSeek AI system utilizing restricted Nvidia chips and fraud charges in Singapore related to similar activities.

The United States has implemented stringent export controls to prevent advanced semiconductor technologies from reaching China, citing national security concerns. These controls aim to restrict China's ability to develop advanced military systems and enhance surveillance capabilities. Despite these measures, reports indicate that smuggling networks have successfully circumvented restrictions, enabling Chinese entities to acquire restricted AI chips. Investigations have revealed sophisticated smuggling operations involving shell companies and fraudulent shipping labels, facilitating the illicit transfer of Nvidia's AI chips into China.

The proposed legislation seeks to address these smuggling activities by mandating the integration of on-chip location verification mechanisms. These mechanisms would prevent unauthorized chips from functioning outside designated regions, thereby enforcing export controls at the hardware level. Foster asserts the feasibility of such technologies, referencing existing implementations by companies like Google. The legislation would require the U.S. Commerce Department to establish relevant regulations within six months of enactment.

The initiative has garnered bipartisan support, with lawmakers from both parties recognizing the need for stricter controls to prevent advanced technologies from reaching potential adversaries. Foster emphasizes the urgency of this measure by citing unpublicized large-scale smuggling operations and the associated national security risks. The smuggling of advanced AI chips into China poses significant concerns, as these components are crucial for developing AI systems with potential military applications.

Recent reports have highlighted China's DeepSeek AI system utilizing restricted Nvidia chips, raising alarms about the effectiveness of current export controls. Additionally, fraud charges in Singapore related to similar activities underscore the global nature of these smuggling operations. The proposed legislation aims to close these loopholes by implementing hardware-based solutions to enforce export restrictions.

The semiconductor industry has been significantly impacted by U.S. export restrictions. For instance, Advanced Micro Devices (AMD) announced it expects a $1.5 billion revenue hit in 2025 due to new U.S. export restrictions requiring licenses for advanced AI chip shipments to China. This development will notably impact AMD’s revenue in the year’s second half and reduce its adjusted gross margin by 11 percentage points down to 43%. China, accounting for over 24% of AMD’s revenue, is a key market. In context, Nvidia also disclosed it faces a $5.5 billion charge related to similar restrictions.

The proposed legislation by Representative Foster represents a significant step toward addressing the challenges posed by AI chip smuggling. By integrating location verification mechanisms directly into hardware, the bill aims to enhance the enforcement of export controls and mitigate national security risks associated with unauthorized technology transfers.