Taiwan authorities are considering implementing significantly stricter export controls on AI chip sales to China to better align with US measures, according to sources familiar with the matter. The proposal would restrict sales to all customers in China, not just specific companies on an export blacklist that includes the likes of Huawei Technologies Co., enabling Taiwan to prosecute AI chip smuggling to China as a criminal violation for the first time. As reported by Bloomberg, Taiwanese officials are examining regulations that would limit AI chip sales to all Chinese customers rather than only those already subject to restrictions, such as Huawei. This would be among the most far-reaching measures from President Lai Ching-te's administration to safeguard Taiwan's technological and national security interests, as Taipei tests its own comfort levels with more assertive policies while managing pressure from American officials. The controls are being considered as part of ongoing trade talks with the US, with Taiwan having agreed to directionally follow the US approach and likely to curb China sales of AI chips with processing power above a specified computing performance threshold.
Taiwan currently doesn't consider unauthorized AI chip exports to China to be a crime, and authorities only warn potential sellers that they may be breaking US rules. The only legal recourse through Taiwan's courts is to charge suspected smugglers with violations of existing local laws, which can be a harder bar to meet and narrows the scope of cases Taiwan can currently pursue. Taiwan authorities made their first known detentions of alleged chip smugglers last month, on charges of falsifying documents, but haven't accused any companies of wrongdoing. The idea is to give authorities more legal tools to address the diversion of advanced hardware, like AI servers with Nvidia chips, from Taiwan to China. When Taiwan announced last month's arrests of suspected chip smugglers on document falsification charges, the official statement left out key details, including that Japan was allegedly used as a transit point, and that investigators suspected the defendants had already successfully moved at least one shipment of servers through that route before the hardware reached Hong Kong.
The potential controls would significantly impact Taiwanese companies involved in AI chip manufacturing and assembly. TSMC shares fell around 1% in premarket trading following the Bloomberg report, reflecting broader industry concerns about the proposed restrictions. Gigabyte Technology Co. shares fell as much as 3.2% in early trading in Taipei, while Asustek Computer Inc. dropped 4.4% Wednesday, outpacing the broader market. As reported by The Business Times, Taiwan is home to the vast majority of the world's AI chip manufacturing, and many companies that assemble Nvidia processors into servers for data centers. The move represents a delicate balance for Taiwanese leaders, who have already expressed discomfort restricting an industry that's made Taiwan the world's fifth-largest stock market. Last year, Taiwan curbed AI chip exports to South Africa during a spat about the location of the island's de facto embassy there — only to reverse course two days later, with Minister of Foreign Affairs Lin Chia-lung noting that Taiwan doesn't want to weaponize semiconductors while acknowledging that if counterparts harm their interests, they will need to respond.
While Taiwan has agreed to directionally follow the US approach and is likely to curb China sales of AI chips with processing power above a certain threshold, there remains significant detail to finalize before implementation. According to Bloomberg, details of the proposal remain under review and that senior officials from both Taiwan and the United States have not yet formally approved any final agreement. The framework under consideration would closely resemble export controls introduced by Washington beginning in 2022. The proposal is still taking shape, with Taiwan having broadly agreed to mirror the U.S. framework but yet to decide how closely it will follow American policy in practice. Any move to curb AI chip sales is likely to trigger a response from President Xi Jinping's government in China, which views Taiwan as its own territory. The move would stand apart in a region that's long been under US pressure to prevent China from accessing banned technology, while governments also manage their own relations with the world's second-largest economy.
The proposal comes as Taiwan tests its own comfort levels with more assertive policies while managing pressure from American officials. Malaysia last year agreed to fully match US curbs on AI processors as part of a broader reciprocal trade agreement, though it's unclear whether Malaysia has taken implementation steps. Singapore hasn't indicated interest in imposing AI chip controls, instead choosing to address semiconductor diversion via existing local laws. Taiwan's move would be significant given its position as the world's fifth-largest stock market and home to the majority of global AI chip manufacturing. Last year, when Taiwan blacklisted Huawei and Semiconductor Manufacturing International Corp. (SMIC), a Chinese Foreign Ministry spokesperson criticized the DPP authorities' actions, saying that "the DPP authorities' kneeling and ingratiating themselves with the US will only hurt and ruin Taiwan's interests." The discussions come as U.S. policymakers increasingly focus on preventing advanced computing hardware from reaching China through indirect channels, with concerns growing over shipments of AI servers equipped with Nvidia chips being diverted from Taiwan to Chinese entities.
