Congress Pushes Chip Tracking to Stop China AI Smuggling

Congress moves to embed tracking in AI chips

Lawmakers are advancing legislation that would require advanced semiconductors to contain location-verification and tracking technology, aiming to close smuggling routes that funnel restricted AI chips to Chinese companies through Southeast Asia.

The Chip Security Act, authored by Senate Intelligence Committee Chair Tom Cotton and co-sponsored by Senate Minority Leader Chuck Schumer, is expected to be included in this year's defense authorization bill. The measure responds to mounting evidence that illegal chip transfers are undermining U.S. export controls designed to maintain America's lead in artificial intelligence development.

"Communist China continues to lie, cheat, and steal in order to undermine American AI innovation," Cotton said, according to reporting first published by Politico. "Recent events demonstrate the stakes for economic and national security if China were to develop frontier capabilities that match America's."

Why it matters

The legislation reflects a fundamental tension in U.S. technology strategy: American companies are investing billions to supply Southeast Asia's booming digital economies, but those same investments create pathways for China to access computing power Washington wants to deny. The outcome will shape whether the U.S. can simultaneously expand its AI market reach and maintain technological advantage over Beijing.

Smuggling operations surface across the region

Enforcement actions over recent months have revealed the scope of the problem. Malaysian authorities seized millions of dollars worth of AI chips, Singapore confiscated a luxury villa connected to smuggling operations, and U.S. prosecutors identified suspected smuggling links to a Thai firm. Taiwan charged a smuggling ring in late August that included employees from Nvidia and Supermicro.

A September report from nonprofit C4ADS documented 50 shipments of Nvidia GPUs diverted through Vietnam, Malaysia, and India to China and Hong Kong between 2023 and 2025, totaling $13.4 million. The organization noted its findings likely represent a fraction of actual illicit transfers, as some actors use fishing boats or mislabel products to avoid detection.

Chris Miller, author of "Chip War" and a Tufts University professor, told Politico that "the demand for smuggling is, if anything, growing," calling AI chips "absolutely critical for the future of AI and therefore the future of national power."

Industry warns of competitive risks

Technology trade groups oppose the tracking requirements, arguing they could damage American competitiveness. A letter from the Information Technology Industry Council and other organizations warned that the Chip Security Act "would directly undermine American diplomatic engagement by reinforcing the perception that U.S. products and services cannot be trusted."

Nvidia dismissed smuggling concerns as overstated, noting the company primarily sells to established partners and that diverted products would lack service, support, or updates.

Yet evidence suggests smuggling plays a meaningful role in Chinese AI development. Michael Kratsios, director of the White House Office of Science and Technology Policy, said in July that Chinese company Moonshot "acquired" servers with highly restricted Nvidia chips, likely to train its AI models.

Southeast Asia caught between superpowers

The region has become a focal point as U.S. tech giants including Amazon, Microsoft, and Google expand data center operations. Southeast Asian data centers are projected to reach 9.4 gigawatts of capacity by 2035—more than nine U.S. nuclear power plants—according to consultancy Wood Mackenzie.

But regional governments face difficult choices. Countries don't want to appear anti-China or damage business relationships through aggressive enforcement. "These countries just don't want to pick sides," said Irene Zhang, a researcher with ChinaTalk.

The U.S. co-hosted a summit in Jakarta last week focused on building export control capacity with Southeast Asian nations, though officials emphasized regulatory development over immediate crackdowns on smuggling.

These details were first reported by Politico.