Bill to Mandate Chip Export Location Tracking Would Backfire, Tech Policy Experts Say

James Lewis, a fellow with the Center for European Policy Analysis and a former U.S. foreign service official who worked on export controls, called the bill “foolish.” He said the U.S. already has tools in place to prevent the diversion of nuclear weapons, missiles, weapons of mass destruction and other technologies, and those tools “work much better.”

“This bill is a really bad idea,” he said during an event this week hosted by CEPA and the Information Technology and Innovation Foundation. “Why they decided to draft this bill is unclear to me.”

The legislation, which has bipartisan support, would require export-controlled advanced computing chips to contain location verification mechanisms, and it would require exporters to report to BIS whenever their chip was diverted to an unauthorized end user (see 2507070032 and 2507080001).

Lewis compared the bill to Clipper Chip, a cryptographic device developed by the U.S. in the 1990s that was intended for secure communication devices but would allow the U.S. government to decipher calls and gather information from those devices. The idea was met with backlash from privacy groups and was abandoned within a few years.

Lewis noted that Clipper Chip “added complexity” and made U.S. products “unappealing to the broader market.”

“If we had gone ahead with Clipper Chip, the U.S. would not be the dominant power it is in the internet now,” he said, “and I'm afraid that if we go ahead with this location nonsense, we'll see the same effect.”

Daniel Castro, ITIF vice president and director of its Center for Data Innovation, also criticized the bill. He said consumers of U.S. advanced chips would view a location-tracking feature as a “surveillance technology,” and it would likely raise major privacy concerns. Foreign customers also would likely not trust the U.S. to stop at only tracking the location of a chip, Castro said.

“The next step to that is to say, ‘if they're in a location we don't expect them to be, or they shouldn't be, we want the ability to either significantly degrade the performance of the chip or shut it down,’” he said. “Any customer of this technology would not want your missile system to be dependent on an AI chip that the U.S. government could turn off.”

He added that it would “significantly impact the viability of U.S. products,” and foreign competitors would “seize on this opportunity and develop alternatives.”

A spokesperson for Rep. Bill Huizenga, R-Mich., one of the bill’s sponsors, said both comments by Lewis and Castro are “factually incorrect.” The spokesperson declined to elaborate.

Huizenga said earlier this week that the legislation doesn’t “advocate for some sort of kill switch” in which the chip would cease to function if it were being used in a way that violated export controls, although that idea “had been discussed” (see 2507160046).

A congressional staffer working on the bill defended the legislation, saying, "All of these criticisms are targeted at geofencing technology, which is not mandated in this legislation. The legislation is focused instead on location-verification capabilities, which are already included in the majority of high-end AI chips and would likely require no hardware changes whatsoever."

Seven other supporters of the bill didn't immediately respond to a request for comment.

Panelist Neil Chilson, head of AI policy at the nonprofit Abundance Institute, said that if the U.S. moves forward with the bill, close American allies may not trust that U.S.-origin chips won’t have some “security vulnerabilities,” even if the bill doesn’t give the government a kill switch.

“The question is whether or not a hardware mandate like this will bring our allies along, or will they look to other options rather than face the risk that their data, that their security, that their infrastructure is built on something that may have security vulnerabilities that are baked in at the hardware level,” Chilson said.

Asked if U.S. companies would be willing to accept chips from foreign firms if those foreign chips had their own set of on-chip governance mechanisms, Chilson said: “Of course we wouldn't want that.”

“The purpose right now is nonproliferation or non-diversion,” he said, but “once you have mechanisms like this in the chips, why wouldn't people pursue other policy goals?”

Castro made similar points, saying he could see this legislation leading to the U.S. wanting to have “the final say on whether your chips work.” He said critics might argue: “Why wouldn't the U.S. just shut down your chips in a trade war, or as retaliation for some policy they don't like?”

Castro also said location tracking presents its own set of technical problems. He noted that ping-based location verification is accurate only “up to a certain distance,” and that could lead to inaccurate or misleading reports about where chips are actually located.

“Some of the countries we want to restrict access to, like Iran, they're very close to countries we'd want to allow access to, like the [United Arab Emirates],” he said. “So there are some fundamental challenges that even if the technology worked as it’s supposed to work today, it still wouldn't necessarily give us guarantees.”

Tim Fist, a senior adjunct fellow with the technology and national security program at the Center for a New American Security, was the lone panelist to partly defend the bill. He said it’s “directionally focused on the right things” and noted that it gives leeway to chip companies around how they would track their chips.

“The government isn't saying, ‘here's exactly how you should design the hardware or the software or whatever your mechanism is,’” Fist said. “The implementation is really left up to industry to figure out.”

He also said there are differences between preventing the diversion of military weapons -- such as missiles -- and shipments of AI chips, which are much smaller and exported in larger volumes. Companies use traditional know-your-customer (KYC) procedures to prevent large weapons from going to bad actors, he said, but the smuggling of U.S. chips through supply chains is more complex. It usually involves large American companies selling to distributors in third countries, which then sell to resellers, which then sell to a “complex network of shell companies who then aggregate chips and send them along back to mainland China,” Fist said.

This makes it “difficult to track and enforce KYC across this whole ecosystem in a way that you don't have those same problems with the sensitive military goods.”

Asked what a “smart” chip security policy would look like, Fist said his “preferred solution” would involve “giving good guys the ability to verify that they haven't been involved in smuggling and to really streamline their access to much larger numbers of chips.”

Panelists agreed that BIS needs more funding to prevent diversion of sensitive chips. “I would take an additional couple hundred million dollars for BIS 10 times over this bill,” Fist said.

Lewis also said he would “much rather see more resources go to BIS enforcement to tamp this down,” while Castro said Congress should adequately fund BIS so they have the correct “tools” and can convince allies to help.

“That's how you fix enforcement,” Castro said. “It's not by changing something on the chips, because that fundamentally wasn't the problem to begin with.”

Chilson also noted that BIS has the power to condition export licenses “on all sorts of things,” and lawmakers should give the agency a chance to find a solution once they have a bigger budget.

“The executive branch, I think, could do these types of things without this new bill. There are lots of enforcement levers that BIS can pull if they have the staff and capability to do so,” he said. “Before we redesign the [graphics processing unit] ecosystem through legislation, maybe we should try some of those levers, which we haven't tried, maybe as fully as we could.”