Jensen Huang, until Thursday the head of Nvidia, one of the world’s most valuable corporations, abruptly resigned his post following his admission of an extramarital affair with an alleged Chinese spy. Now an even bigger scandal is developing at the Department of Commerce, whose secretary, Howard Lutnick, bears almost as much responsibility for this brewing crisis as Mr. Huang.
Nvidia dominates the market for chips needed to drive artificial intelligence. Its cutting-edge chips have been deemed so critical to our national security that they cannot be sold to Chinese companies. Clearly, Mr. Huang demonstrated terrible judgment in being intimate with a woman who is not only suspected of working for China’s intelligence apparatus but whose firm is believed to be diverting banned Nvidia chips to China. But it was Mr. Lutnick who made the decision not to enforce export controls designed to counter chip smuggling, making Mr. Huang a potential target. (China has rejected the espionage claims.)
It is largely Mr. Lutnick’s fault that Megaspeed, the company that employed the alleged spy, successfully smuggled a reported $7 billion of Nvidia chips into China (a number that no doubt represents the tip of the iceberg). His actions created the conditions for this crisis to occur, conditions that have allowed China to remain competitive with the United States in the race for A.I. supremacy.
Mr. Lutnick must resign his post so the cleanup can commence.
In January 2025, the Biden administration imposed new export controls expressly to combat Chinese chip smuggling. These controls required unvetted companies in most countries to receive an export license from the Commerce Department before making any large A.I. chip purchase. Mr. Lutnick, who took his post the following month, never allowed these controls to go into effect. Mr. Huang was already building what would become a close relationship with the new president and Mr. Lutnick, and Nvidia long maintained that there was “no evidence” that restricted chips were being diverted to China. In May of that year, the Commerce Department announced that it would not enforce the controls, saying it would eventually replace them with other anti-smuggling measures.
The department never published a replacement rule. It didn’t even bother to officially rescind the Biden administration’s controls. Instead, Mr. Lutnick effectively outsourced the job of vetting whether a given company posed a risk of diversion to China to the private sector, for example to Nvidia and to A.I. server suppliers such as Supermicro.
The consequences of his decision have been catastrophic. Chip smuggling is running rampant. Taiwanese customs data shows that from 2025 to 2026, over $60 billion worth of A.I. chips were most likely shipped to Singapore, Malaysia and Thailand, making these three relatively small countries among the largest importers of A.I. chips in the world.
While some of these chips were most likely shipped to U.S.-owned data centers, many others were probably shipped to companies that diverted them to China. Department of Commerce investigators reportedly suspected that China was the final stop for Megaspeed’s chips; the company in late 2025 was found to have retained strong ties to China. Little wonder, then, that America’s fiercest rival is months behind the United States in A.I. rather than years.
Exploiting loopholes that Mr. Lutnick never closed is now lucrative business, with companies even seeking to raise money from U.S. public equity markets to help finance it. DayOne, a Singapore-based data center company that was spun out of a China-based company in 2025, recently filed to go public on the tech-heavy Nasdaq exchange. According to my calculations derived from data in DayOne’s S.E.C. filings, it is building data centers capable of hosting over 1.5 million of the most advanced Nvidia chips in Southeast Asia. DayOne takes advantage of a loophole in the existing restrictions that permits Chinese companies to use A.I. chips housed in data centers outside China; 70 percent of its revenue comes from ByteDance and its affiliates. Its customers also include at least two companies that the U.S. government has designated as Chinese Military Companies, and its chief executive was previously employed by the China-based company it spun out of.
Mr. Lutnick has not added a single company to the entity list, the Commerce Department’s trade blacklist, in over a year, which is the longest stretch without an update in 18 years. He was reportedly briefed on Mr. Huang’s relationship with Alice Huang (no relation), a Megaspeed executive, and her suspected ties with Chinese intelligence services, in May 2026. Remarkably, Mr. Lutnick appears to be holding fast on keeping Megaspeed off the blacklist, despite repeated urgings from other members of the administration — including Mr. Trump himself. Nvidia’s website still lists Megaspeed as an official “cloud partner.”
Even worse, senior officials under Mr. Lutnick may have impeded law enforcement investigations into Megaspeed. In May 2025, Jeff Kessler, a top deputy to Mr. Lutnick who oversees export controls, reportedly discussed the department’s ongoing investigation into Megaspeed with Nvidia’s general counsel — a highly unusual action. The department halted its investigation soon afterward.
We must close the loopholes to halt the flood of A.I. chips to China. Mr. Lutnick should be held accountable for his failures, and the Commerce Department should immediately enforce the anti-smuggling regulations that remain on the books, or replace them with new, stricter ones. It should also close the loophole allowing Chinese companies to rent access to chips they cannot legally buy.
Congress can start to repair the damage by immediately passing three pending bipartisan bills — the A.I. Overwatch Act, the MATCH Act and the Chip Security Act — that require the Commerce Department to strengthen export controls related to A.I. Congress should also investigate why Mr. Lutnick and Mr. Kessler did not act on this obvious national-security threat.
Mr. Lutnick’s failure to enforce export controls has enabled one of the largest transfers of controlled technology to a U.S. adversary in history. He has to go, and the government must act now to stop the bleeding.
Chris McGuire is a senior fellow at the Council on Foreign Relations. He previously served on the National Security Council, where he oversaw export controls and artificial intelligence policy.
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