CNAS Insights | The Nvidia Scandal Is a Wake-Up Call for Congress

Nvidia founder and CEO Jensen Huang has resigned amid revelations of extramarital affairs, including with an alleged Chinese spy. The suspected Chinese asset, Alice Huang, has served as an executive at Megaspeed, a Singapore-based company under U.S. investigation for allegedly helping Chinese companies illicitly obtain export-controlled Nvidia chips. If the particulars of the incident were shocking, the broader gaps it exposed in U.S. export controls were not.

Congress must seize on the crisis to strengthen U.S. export controls and secure America’s AI lead. It can start by closing loopholes that let Chinese entities remotely access U.S. chips and purchase legacy equipment to make powerful chips of their own. It should also strengthen existing controls by properly funding the Bureau of Industry and Security (BIS), fast-tracking the assessment of technologies to secure AI chips from diversion or misuse, and permitting more industry coordination to fight techniques that enable Chinese entities to distill America’s frontier models. Congress should also ramp up its oversight of the Trump administration’s export control decisions and thoroughly investigate the Nvidia incident for any damage to U.S. national security.

U.S. Semiconductor Export Controls: The Good, the Bad, and the Broken

Beginning in President Donald Trump’s first term and intensifying under President Joe Biden, U.S. export control policy has sought to deny China the ability to buy or make the advanced chips needed to train powerful AI. While not without controversy, the strategy has largely worked: China remains unable to legally import advanced AI chips at the scale and quality needed to keep pace with U.S. frontier AI capabilities, and it remains at least a decade away from replicating the advanced machinery needed to produce them.

The success of the export control strategy is clear in China’s extensive efforts to circumvent it. Elaborate networks have emerged to smuggle thousands of chips into China and bypass U.S. export controls. Although export controls stopped Chinese entities from legally importing advanced AI chips, they did not stop them from accessing chips remotely via data centers located in third countries like Malaysia and Singapore. Companies like Megaspeed emerged as third-party facilitators, both hosting AI chips for Chinese companies to remotely access and perhaps facilitating their illicit transfer to China.

After Washington blocked China from importing the extreme ultraviolet lithography (EUV) machines needed to make the world’s best AI chips, China imported older, deep ultraviolet lithography immersion (DUVi) machines to make AI chips that were still quite powerful. Chinese companies also began using adversarial distillation, a technique to siphon much of the capability of America’s top AI models for a fraction of the computing power. Each of these tactics sought to evade U.S. controls to advance Chinese AI capabilities.

As China adjusted its tactics, the United States failed to adapt. The BIS, the U.S. government body charged with developing and enforcing these controls, remains under-resourced and understaffed for the investigations and enforcement that the new control strategy required. Loopholes, such as cloud access to powerful compute resources, have been long known but left open by policymakers.

New gaps emerged in the second Trump administration, some self-inflicted. The administration suspended the AI Diffusion Rule, a late Biden-era effort to impose a global licensing regime on the export of advanced AI chips, without clarifying which parts it would stop enforcing. Overseas subsidiaries of Chinese firms exploited the ambiguity by obtaining advanced Nvidia chips without licenses. After banning Nvidia’s H20 chip, a product custom-built for the Chinese market, the administration reversed course and permitted the sale of its H200 chip under a complex reimportation arrangement that gave the United States a 25 percent cut.

The Trump administration explained these moves as a shift in strategy: Instead of trying to choke off China’s capabilities, the United States would instead try to keep China “addicted” to U.S. technology to retain leverage. This strategy seemed nonsensical at the time, dangerously undervaluing the national security and military implications of advanced AI capabilities and ignoring Beijing’s push to indigenize advanced chipmaking. In light of the recent scandal, policymakers are right to investigate whether Chinese influence swayed U.S. policy at the very highest levels.

The scandal comes at a critical time in the U.S.-China competition. The U.S. lead in frontier AI remains fragile—perhaps as little as 6.5 months. In addition to illicitly accessing U.S. technology, Chinese AI firms have shown genuine innovation, and China enjoys real advantages in deploying AI across key industrial sectors like robotics and manufacturing.

The Nvidia crisis is troubling given the firm’s foundational role in America’s AI leadership. But it’s also an opportunity. Congress should investigate the spying allegations and assess any damage to U.S. national security and the integrity of U.S. policymaking for export controls. In parallel, lawmakers should advance an ambitious agenda to strengthen export control enforcement and close longtime loopholes in the broader strategy.

What Congress Should Do

• Pass the Remote Access Security Act: This bipartisan bill would close the cloud access loophole that entities like Megaspeed can exploit to provide compute resources powered by U.S. chips to Chinese entities. As the United States seeks to lead global AI infrastructure build-out, controlling remote access to these capabilities is a commonsense measure to guard against Chinese circumvention.
• Pass the AI Overwatch Act: This bipartisan bill would give Congress a stronger role to review and block advanced chip sales to adversaries, similar to the role it plays for arms sales. The bill would help Congress check ill-advised decisions by the executive branch. This was true even before the Nvidia scandal, when the Trump administration cited faulty logic to allow the export of advanced H200 chips to China. It is especially true now, as Congress confronts the possibility of Chinese influence in U.S. export control policy.
• Fast-track technologies to secure AI chips from diversion or misuse. Congress should work with industry to evaluate and deploy technologies, such as on-chip mechanisms, that could combat illegal diversion of chip exports and guard against unlawful or dangerous uses, while accounting for the risk of China adopting similar standards that could pose surveillance and data security risks.
• Fix BIS: The bureau serves as the U.S. government’s chief enforcer for export controls. But it has long been plagued by inadequate resources. Congress should significantly increase its budget, while establishing guardrails to protect Commerce Department licensing decisions and enforcement investigations from political interference. One option could be to mandate an independent inspector general to conduct oversight on China export controls specifically and report regularly to Congress.
• Allow U.S. AI companies to share information about adversarial distillation campaigns and coordinate efforts to stop them. Adversarial distillation campaigns often target multiple frontier AI companies with different tactics, using a hydra-like ecosystem of third-party intermediaries that resell access to U.S. models and obscure who is making the requests. A targeted U.S. company rarely sees the full picture but is often reluctant to share information with peers out of fear that it might violate anti-collusion protections in U.S. antitrust law. Congress should provide clear legal authority to enable cooperation to combat adversarial distillation, while maintaining guardrails against collusion. This approach has precedent: The Cybersecurity Information Sharing Act of 2015 offered antitrust and liability protection for sharing information about cyber threats.
• Coordinate with U.S. allies to broaden export controls to include DUVi machines. DUVi machines are older and less effective than EUV lithography machines, which are export controlled. But China still uses DUVi machines to make fairly powerful AI chips and remains overwhelmingly reliant on a single supplier, the Dutch company ASML, to buy and service them. Washington should work with the Dutch government to close this gap while exploring ways to compensate the Netherlands for lost market share and protect it from potential Chinese retaliation. Congress could also pass the STRIDE Act, which directs the State Department to coordinate with allies that have significant roles in the AI chipmaking supply chain to promote stronger and more harmonized controls. It could also use its oversight power to ensure robust implementation.
• Ramp up oversight: Congress should conduct vigorous oversight of administration export control decisions and push the administration to use the full extent of its existing authorities to respond to the Nvidia scandal. This includes expediting the addition of Megaspeed to the Entity List (along with a footnote to cover all Megaspeed affiliates), considering visa restrictions or other sanctions against any foreign operatives implicated by the scandal, investigating the potential leakage of classified or sensitive information, and intensifying counter-intelligence briefings to high-value targets in top U.S. tech companies.

The coming days and weeks will shed more light on any damage wrought by Jensen Huang’s affair with the alleged Chinese spy. But the ongoing damage from gaps in current U.S. export controls are already painfully clear. Congress must act now, at this critical moment in the AI race, to shore up the U.S. lead.

Emily Kilcrease is a senior fellow and director of the CNAS Energy, Economics, and Security Program. Vivek Chilukuri is a senior fellow and director of the CNAS Technology and National Security Program.