Washington has spent years tightening rules on advanced semiconductors. Yet billions in AI chips still reach Chinese entities through third countries and smuggling networks. A bipartisan bill now before Congress takes a direct approach. It would force makers of the most powerful processors to embed technology that verifies their physical location after export.
The NBC News reported this week that six firms specializing in shipment tracking sent a letter to congressional leaders endorsing the Chip Security Act. They argue the measure would close loopholes, boost confidence among buyers and regulators, and ultimately expand American chip sales. The letter arrived just as the bill gains fresh momentum on Capitol Hill.
Short sentences capture the stakes. Billions diverted. Military edge at risk. Enforcement failing on paper alone.
The legislation, first introduced in May 2025 by Rep. Bill Huizenga, a Michigan Republican, and a similar Senate version from Sen. Tom Cotton, an Arkansas Republican, directs the Commerce Department to require location-verification mechanisms on covered AI chips. These could take the form of dedicated hardware, firmware updates, or software running on existing silicon. The goal remains straightforward. Confirm the chip sits where U.S. rules allow. Detect diversion early. Reuters detailed the bipartisan group of eight House sponsors, including Reps. John Moolenaar and Raja Krishnamoorthi, who lead the Select Committee on the Chinese Communist Party.
But the push faces resistance. The Semiconductor Industry Association, which counts Nvidia and AMD among its members, has warned that mandating complex features risks undermining global trust in U.S. technology. Yet the tracking companies counter that added verification would speed approvals and open larger deals. Kip Levin, CEO of GeoComply—one of the signatories—told NBC News that “chip smuggling is actively eroding the export controls by putting advanced AI chips in the hands of our strategic competitors.” He added that location tools give “legitimate buyers a way to prove compliance and gives policymakers the confidence to approve larger deals and broader exports.”
Industry divisions run deeper than public statements suggest.
Current export controls have banned direct sales of top-tier AI chips to China since 2022. Enforcement depends on licenses, end-user certificates and post-shipment checks. Reality tells a different story. In one March case alone, the Justice Department charged three people with conspiring to divert $2.5 billion worth of AI chips to China, according to the Justice Department announcement. Similar schemes route chips through Malaysia, Thailand or other Southeast Asian hubs before final delivery. The Cyber Express noted the bill’s origins trace to the Select Committee’s 2025 report on DeepSeek, which trained advanced models using restricted Nvidia hardware.
And the problem persists. Reuters has documented repeated instances of controlled chips appearing in Chinese tenders despite prohibitions. U.S. authorities even experimented with embedding physical trackers in select shipments of Nvidia and AMD servers last year, sources told the wire service in August 2025. Those efforts remained limited to investigations. The Chip Security Act would make verification systematic and mandatory within 180 days of passage.
Proponents point to technical feasibility. Nvidia itself disclosed in late 2025 that it had developed location-related capabilities, Reuters first reported. Software solutions could ping secure servers periodically. Hardware variants might include geofencing that disables performance outside approved zones. Either way, the chip would report its position or face restrictions. The approach builds on existing geolocation expertise from industries like gaming and digital rights management. GeoComply, for instance, already helps streaming services and sportsbooks restrict access by geography.
Critics raise practical concerns. Adding tracking increases costs. It could slow innovation cycles. It might create new vulnerabilities if the verification system itself is hacked. Semiconductor lobbyists argue the rules would constrain the very industry Washington seeks to protect. Yet the tracking firms’ letter insists the opposite holds. Greater assurance would let regulators greenlight sales to friendly but high-risk destinations like Indonesia or Vietnam without constant fear of onward transfer to Beijing.
Recent developments add urgency. In May 2026 the Commerce Department’s Bureau of Industry and Security tightened guidance to close a loophole allowing Chinese-headquartered firms to buy chips through foreign subsidiaries. The House Foreign Affairs Committee passed the Chip Security Act unanimously 42-0 in late March 2026, the Cyber Express reported. The full House has yet to vote, and the Senate version lags. Still, momentum appears real.
Rep. Moolenaar captured the hawks’ view at an April hearing. “Chinese companies are buying what they legally can under existing export control regimes and stealing what they cannot.” His committee has driven much of the legislative pressure. Meanwhile, Chinese AI labs such as DeepSeek and Tencent acknowledge chip shortages limit their models, though they trail U.S. leaders by only months in some areas. Removing that constraint through diverted hardware would accelerate military and economic applications Beijing prioritizes.
So the debate turns on trust versus control. Export paperwork alone has proven insufficient. Smuggling networks adapt faster than regulators. Location verification offers persistent oversight after the sale leaves American shores. Yet it also marks a deeper intrusion into product design. Chipmakers would build government-mandated features into hardware sold worldwide. Allies might bristle. Customers could seek non-U.S. alternatives over time.
The six companies behind the recent letter—GeoComply, Multibeam, Fortaegis and three others—stand to gain if the bill passes. Their expertise aligns neatly with the new requirements. That self-interest does not invalidate their argument. Confidence in compliance could indeed expand markets. Larger transactions. Faster approvals. The letter sent Thursday makes that case plainly.
Experts outside industry echo the need. Chris McGuire, a senior fellow at the Council on Foreign Relations, told NBC News there is “a significant problem about diversion of chips to China.” Technical measures deserve consideration if they help. The question is whether location tracking delivers enough security without imposing costs that erode America’s own lead.
Implementation details remain unfinished. The Commerce secretary would define exact standards. Regulators must balance security with commercial realities. Enforcement would require new monitoring infrastructure. False positives could frustrate legitimate users. Yet the alternative—continued leakage of frontier compute—carries steeper strategic risk.
China’s military has integrated AI into its modernization plans. Advanced chips power everything from simulations to autonomous systems. Denying access preserves a key asymmetry. The Chip Security Act attempts to make that denial stick beyond the loading dock. Whether it succeeds depends on technical execution, industry cooperation and diplomatic fallout.
For now the bill sits in legislative limbo. Recent industry support injects new energy. The smuggling cases keep coming. And the AI race accelerates. Location tracking on every high-end chip exported from the United States would mark a notable evolution in how Washington protects its semiconductor advantage. The outcome will influence not just chip sales but the broader balance of technological power for years ahead.
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