How The Chip Security Act Could Impact the Global AI Race
The US government has proposed new legislation that would mandate location-tracking mechanisms for export-controlled AI chips.
Referred to as the Chip Security Act, introduced by Senator Tom Cotton, the legislation aims to combat semiconductor smuggling and unauthorised use through enhanced monitoring requirements for data centre operators and technology importers worldwide.
The proposed legislation would require companies exporting AI chips to report to the Bureau of Industry and Security (BIS) if their products have been diverted from their intended location or subject to tampering attempts.
It comes as technological competition is ongoing between Washington and Beijing, with both nations meeting today and agreeing to suspend most tariffs for 90 days to suspend most tariffs for 90 days. Currently, it is reported that US chips continue to flow into Chinese markets through third-party countries and shell companies, despite existing restrictions.
“With these enhanced security measures, we can continue to expand access to US technology without compromising our national security,” says US Senator Tom Cotton.
Unpacking the export control framework
The proposal emerges as the Trump administration plans to rescind a Biden-era rule restricting advanced AI chip exports. Biden’s government aimed to cement the US as a global leader in AI, restricting Chinese chip exports citing reasons of national security.
This new approach now requires companies exporting AI chips to report to BIS, the primary agency responsible for implementing and enforcing export controls, if their products have been diverted from their intended location or subject to tampering attempts.
US Representative Bill Foster also plans to introduce a bill with similar provisions in the coming weeks, according to Reuters.
Changes are also coming as American lawmakers have focused on restricting Chinese access to AI technology that could enhance military capabilities. This is in the wake of reports of widespread smuggling of Nvidia chips into China in violation of export control laws.
The company’s chips have become the foundation for most large language model development, making them particularly sensitive from a national security perspective.
Tracking measures from the US as part of the Chips Security Act would ultimately provide the authorities with data on the physical location of chips throughout their lifecycle. However, incorporating this extra tracking technology into the chip design inevitably adds greater complexity to manufacturing processes and supply chain management.
Data centre operators in Europe and Asia will need to address these new requirements in their policies, as the regulations affect not just the chips themselves but also products containing these chips.
Looking at the full impact
More broadly, chip legislation has to battle a period of unprecedented demand within the data centre industry, particularly for AI acceleration hardware.
Data centre investment in GPU clusters has reached record levels, with Nvidia in particular maintaining a dominant market share in the AI training segment.
Such global competition for AI dominance has only intensified the leadership race between the US and China, with advanced chips becoming contested assets. Notably, China is pursuing its own type of self-sufficiency via its ‘Made in China 2025’ initiative.
The verification systems mandated by the Chip Security Act in the US would require that AI chips under export regulations, along with products containing these chips, be equipped with location verification systems to help detect diversion, smuggling or unauthorised use.
For data centre operators, this could spark questions over privacy and network security, particularly when it comes to critical infrastructure.
Tom Cotton shares: “With these enhanced security measures, we can continue to expand access to US technology without compromising our national security.”
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