New Paper Warns AI Chip Smuggling to China May Undermine U.S. National Security Interests

June 11, 2025 - Today, a new working paper, Countering AI Chip Smuggling Has Become a National Security Priority: An Updated Playbook for Preventing AI Chip Smuggling to the PRC, by Erich Grunewald and Tim Fist was released.

The paper presents new analysis indicating that artificial intelligence (AI) chip smuggling into the People's Republic of China (PRC) has likely occurred at a scale that significantly undermines U.S. attempts to restrict Beijing's access to advanced AI. Drawing on open-source evidence and a probabilistic model, the authors estimate that between 10,000 and several hundred thousand chips may have been smuggled into the PRC in 2024, with a median estimate of approximately 140,000. If the true number is within this distribution, smuggled chips could make up a significant portion of AI compute acquired by the PRC in 2024-between 1 and 30 percent of its inference compute capacity (a median of 6 percent) or between 1 and 40 percent of its training compute capacity (a median of 10 percent).

The authors identify four key lines of argument supporting the likelihood of large-scale chip smuggling:

1. Smuggling should be expected based on historical precedent.
2. Smuggling of U.S. AI chips is highly incentivized by their superior performance, higher supply, and more mature software ecosystem relative to chips legally available to Chinese AI labs.
3. Six news outlets have independently reported evidence of large-scale AI chip smuggling, totaling tens to hundreds of thousands of chips smuggled in 2024.
4. There are many online listings for export-controlled AI chips available for purchase in the PRC. The authors conducted a non-exhaustive search of three Chinese online marketplaces and found 132 domestic listings, including many photos of supposedly smuggled goods.

The paper argues that enforcement capacity has not kept pace with the scale of the threat. The Bureau of Industry and Security (BIS), which administers and enforces export controls, remains severely under-resourced-despite a growing mandate since 2022. In fact, estimated profits from just three reported smuggling cases in 2024 exceed the BIS's annual enforcement budget.

To address the growing risk, the authors outline a six-part policy playbook for both government and industry, including stronger due diligence requirements, and increased funding for enforcement. The paper also recommends a whistleblower incentive program, expanded legal authorities to encourage insiders to report violations, and the fulfillment of a full fiscal year 2026 budget request for the BIS.

For more information or to schedule an interview with the report's authors, please contact Alexa Whaley at [email protected].