AI Chip Smuggling: A Growing National Security Concern
A new working paper released on June 11, 2025, by Erich Grunewald and Tim Fist presents alarming evidence that artificial intelligence (AI) chip smuggling into the People’s Republic of China (PRC) has likely reached a scale that significantly undermines U.S. attempts to restrict Beijing’s access to advanced AI technology. The authors’ analysis, based on open-source evidence and a probabilistic model, estimates that between 10,000 and several hundred thousand AI chips may have been smuggled into the PRC in 2024, with a median estimate of approximately 140,000 chips.
The Scale of the Problem
If these estimates are accurate, smuggled chips could have accounted for a substantial portion of AI compute acquired by the PRC in 2024. The authors suggest that smuggled chips may have made up between 1 and 30 percent of China’s inference compute capacity (with a median of 6 percent) or between 1 and 40 percent of its training compute capacity (with a median of 10 percent). These figures raise serious concerns about the effectiveness of current export controls and the potential national security implications.
Evidence of Large-Scale Smuggling
The authors identify four key lines of argument supporting the likelihood of large-scale AI chip smuggling:
- Historical precedent suggests that smuggling should be expected.
- U.S. AI chips are highly sought after due to their superior performance, higher supply, and more mature software ecosystem compared to chips legally available to Chinese AI labs.
- Six news outlets have independently reported evidence of large-scale AI chip smuggling, totaling tens to hundreds of thousands of chips smuggled in 2024.
- Numerous online listings for export-controlled AI chips are available for purchase in the PRC.
Enforcement Challenges
The paper argues that current enforcement capacity has not kept pace with the scale of the threat. The Bureau of Industry and Security (BIS), responsible for administering and enforcing export controls, remains severely under-resourced despite a growing mandate since 2022. In fact, the estimated profits from just three reported smuggling cases in 2024 exceed the BIS’s annual enforcement budget.
Policy Recommendations
To address this growing risk, the authors outline a six-part policy playbook for both government and industry. Key recommendations include:
- Stronger due diligence requirements
- Increased funding for enforcement
- Implementation of a whistleblower incentive program
- Expanded legal authorities to encourage insiders to report violations
- Fulfillment of the full fiscal year 2026 budget request for the BIS
The report emphasizes that countering AI chip smuggling has become a national security priority, requiring immediate attention and action from both policymakers and industry stakeholders.
