Blake McFalls — May 19, 2026
Artificial intelligence has been a growing trade concern for the U.S. government. Considering artificial intelligence’s (AI’s) applications in military and high-tech industries, the U.S. has been wary of allowing adversaries, such as China and Russia, to get a hold of AI infrastructure. As a result, the Biden and Trump administrations have put a multitude of export controls on Nvidia chip flows to adversaries, with China being of most concern as of late. Unfortunately for China hawks in the U.S. government, China’s demand for AI chips has been so high that the chip smuggling industry thrived in 2026.
The smuggling problem isn’t new because the export controls themselves aren’t new either. The Biden administration first put export controls on Nvidia chip flows to China in 2022. Chinese tech companies, such as Alibaba, who aimed to scale new AI models needed AI chips, but Chinese chips are significantly less advanced than Nvidia chips under controls on metrics such as logic and memory. Because of this, Chinese tech companies sought to bypass the export controls in order to access the highest quality infrastructure to train AI models.
The chip smuggling industry has quickly taken shape. One of the reasons why the Department of Justice (DOJ) has often struggled to crackdown on smuggling is the variation in the types of schemes. Usually though, smuggling schemes involve a web of tech companies across the U.S., China, and a third country.
Recent DOJ investigations reveal the nature of some of these schemes. One operation uncovered in March gave insight into how smugglers obtain and circulate Nvidia chips. Alan Hao Hsu, one of the three perpetrators, recounted his many deals with Lenovo, a large tech company. Lenovo was the mechanism by which Hsu was able to obtain Nvidia chips, as Lenovo is a strategic partner of Nvidia that circulates GPUs designed by Nvidia to third-party consumers. By using a shell company under the name Hao Global, Hsu was able to legally buy chips and ship them to various Southeast Asian companies. Although Hsu originally told Lenovo that these chips were going to be used by U.S. companies, the end user was based in Shenzhen, China. In another instance, Hao Global bought chips from Lenovo, repackaged them in New York, and exported them to Canada, eventually being transshipped into China.
Another higher-profile incident involving Super Micro Computer follows a similar trend, though fewer details have been uncovered. Unlike Hao Global, Super Micro Computer is a legitimate company that provides infrastructure, such as chip stacks and server hardware, to data center operators. Super Micro Computer claimed it was shipping this infrastructure, chock-full of Nvidia GPUs under export control, to servers across Southeast Asia, coordinating with companies in the region to render the shipment more credible. However, the chips were destined for Chinese use.
Both of these case studies demonstrate both how elusive and how fragile smuggling operations can be. Both of these schemes involve smugglers gaming international customs, a practice the Trump administration has been acting upon since 2025 through trade deals with Southeast Asian nations such as Vietnam. It is unlikely these efforts will entirely rout out transshipment, the primary tactic smugglers use to send chips to China. Countries cooperating with the U.S. are likely to spend more effort strengthening customs enforcement. As a result, smuggling practices could become more difficult.
An overlooked player in smuggling operations is the Chinese government. Smugglers rely on demand from Chinese tech companies for American chips, but if the Chinese government strengthens its own enforcement of tech companies, chip demand will decrease. Indeed, China’s Made in China 2025 initiative aims to make the country self-sufficient in high-tech industries, emboldening the government to ban foreign chips in state-funded data centers. China already appears distasteful of Chinese tech companies using American tech, and considering the recent rechauffement of the U.S.-China relationship, the Chinese government may increase enforcement of chip smuggling.
The smuggling of Nvidia chips is a complex issue that will require a larger expenditure of U.S. government resources and more global cooperation. Recent DOJ investigations are steps in the right direction, exposing cracks in the edifice of the global chip smuggling industry.
