The Trump administration is planning to restrict the shipments of AI chips to Malaysia and Thailand in an effort to stop advanced semiconductors from being smuggled into China.

The new controls, currently being drafted by the Commerce Department, would be enacted alongside the formal recession of the Biden-era AI Diffusion Rule, Bloomberg reported.

However, despite the rollback of the diffusion rule in favor of a “bold, inclusive strategy,” the administration is planning to maintain semiconductor restrictions targeting China, in addition to a 2023 measure enacted by the Biden administration that covers 40 other countries.

The US Department of Commerce (DOC) formally rescinded the AI Diffusion Rule in May, days before it was set to come into force. It was set to restrict the access of AI chips and AI model weights by countries, determined by a tiered system decided by the US government, essentially blocking or capping the export of high-end semiconductors, including GPUs.

That same week, the US Bureau of Industry and Security (BIS) released guidance stating that entities allowing American AI chips to be used for training and inference of Chinese AI models may be liable to “civil or criminal enforcement action.”

In June 2025, it was reported that the Ministry of Investment, Trade and Industry (MITI) in Malaysia was investigating an unnamed Chinese company’s potential usage of Nvidia chips that are banned under US export controls. A report from the Wall Street Journal that same month detailed the practice of Chinese engineers flying hard drives worth of data into Malaysia in order to use Nvidia’s chips.

Citing people familiar with the situation, Bloomberg reports that while the draft rule targeting Malaysia and Thailand marks the first formal step in Trump’s overhaul of the diffusion rule, the measure is “far from a comprehensive replacement” and doesn’t answer questions about security conditions for the use of US chips in overseas data centers.

Last month, it was reported that the US Department of Commerce had drafted plans to revoke authorizations granted to global chipmakers over their operations in China, potentially making it challenging for Samsung, SK Hynix, and TSMC to use US goods and technology at their Chinese factories.