The global trade of AI chips is undergoing significant changes due to evolving U.S. export control policies and the reactions of key Southeast Asian nations. Since the announced recission of the Biden-era AI Diffusion Rule on May 13, 2025, the Trump administration has implemented a more targeted approach to AI chip export controls, shifting to precise measures aimed at preventing the diversion of advanced semiconductors to key adversaries, notably China. This refined strategy includes heightened scrutiny on countries like Malaysia and Thailand, driven by recent surges in chip shipments and substantial investments in data center infrastructure within these countries. In fact, there are reports that the administration is currently drafting new controls to limit the export of advanced AI chips to both countries, aiming to prevent their diversion to China.
In response to these developments, Malaysia has adopted a proactive regulatory approach concerning U.S.-origin AI chips. Effective July 14, 2025, Malaysia's Ministry of Investment, Trade and Industry has mandated a Strategic Trade Permit for all exports, transshipments, and transits of high-performance U.S.-origin AI chips. This swift action, enacted under the "Catch-All Control" provision of Malaysia's Strategic Trade Act 2010, aims to close regulatory gaps and prevent illicit trade, thereby mitigating the risk of Malaysia being perceived as a transshipment hub by enhancing transparency and oversight in the semiconductor supply chain.
Malaysia's regulatory stance also stems from broader geopolitical considerations. As an example, one Chinese company reportedly bypassed U.S. export controls by utilizing Malaysian data centers equipped with American-made AI chips, with its engineers transporting 80 terabytes of training data to develop AI models locally for later return to China. Such incidents underscore U.S. concerns about Malaysia potentially serving as a "back door" for illicit trade and highlight the practical challenges that Malaysia faces in policing its role as a logistics and export hub for high-end AI chips.
The new U.S. strategy appears focused on establishing a compliance corridor in Southeast Asia that incentivizes U.S. tech investments by encouraging partnership with only those countries that demonstrate strong regulatory alignment. Malaysia's decision to require permits for the outward movement of chips corresponds with this approach, strengthening its position as a trusted hub within the global semiconductor ecosystem.
The U.S. Department of Commerce is expected to formalize the rescission of the Biden-era AI Diffusion Rule imminently and issue a replacement, which is anticipated to be less burdensome than its predecessor and more reflective of the current administration's priorities. While specific details are pending, it is anticipated that the new rule will focus on more narrowly defined categories of AI chips and end-users, reducing the compliance burden on legitimate commercial transactions while still targeting high-risk diversions. The current trajectory suggests a more targeted and strategically focused enforcement posture, emphasizing collaborative efforts with allies and restricting technology access to perceived threats.
As this new U.S. AI chip policy evolves, companies in the digital infrastructure industries will need to remain vigilant, adapting their compliance frameworks and supply chain strategies to navigate this complex and developing landscape. The long-term implications of this policy shift could even lead to a more bifurcated global AI supply chain, where geopolitical alliances increasingly dictate technological access and investment flows.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
