Taiwan, however, doesn’t consider unauthorized AI chip exports to China to be a crime. While Taiwan authorities do warn the potential sellers that they may be breaking US rules should they proceed, the only legal recourse through the island’s courts is to charge suspected smugglers with violations of other, existing local laws.
This can be a harder bar to meet, narrowing 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 now, as part of ongoing trade talks with the US, Taipei officials are considering imposing much stronger AI chip controls that would restrict sales to all customers in China, not just specific companies on an export blacklist that includes the likes of Huawei Technologies Co., said the people, who requested anonymity to discuss a sensitive matter. That would enable Taiwan to prosecute AI chip smuggling to China as a criminal violation for the first time.
If implemented, the controls would be among the most far-reaching measures so far 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 — and manages pressure from American officials on multiple fronts.
There remains a lot to be ironed out. 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 — much like Washington does, one of the people said. But Taipei has not entirely decided on how far it will go to adopt American policies, according to the person, who added that there are still details to finalize before senior officials on both sides can review and sign off on the potential deal.
Representatives for the American Institute in Taiwan — the de facto US embassy — and the island’s International Trade Administration didn’t respond to requests for comment. Nvidia didn’t respond to a request for comment outside normal working hours.
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 — a characterization the self-ruled island democracy strongly rejects.
Last year, when Taiwan blacklisted Huawei and Semiconductor Manufacturing International Corp., China’s top chipmaker, a Chinese Foreign Ministry spokesperson said that “the DPP authorities’ kneeling and ingratiating themselves with the US will only hurt and ruin Taiwan’s interests,” referring to Lai’s ruling Democratic Progressive Party.
New restrictions against China also may impact industry officials in Taiwan, which is home to the vast majority of the world’s AI chip manufacturing — and many of the companies that assemble Nvidia processors into servers, which are installed by the thousands in data centers to train and run AI models. Taiwan authorities haven’t accused any companies of wrongdoing.
It’s a delicate balance — and leaders in Taipei 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. Foreign Minister Lin Chia-lung said shortly afterward that Taiwan doesn’t want to weaponize semiconductors, while noting that “if our counterparts harms our interests, we will need to respond.” Beijing criticized Taiwan’s actions at the time.
Last month, when Taiwan arrested suspected chip smugglers on document falsification charges, the press release mentioned neither the alleged pass-through location — Japan — nor authorities’ suspicion that the defendants had already successfully sent at least one batch of servers there before ultimately shipping them to Hong Kong.
At the same time, Lai pledged last year to address unspecified US concerns on export controls. Under his administration, Taiwanese authorities have adopted an increasingly hawkish position on protecting the island’s tech sector.
In April, a Taiwan court sentenced a Tokyo Electron Ltd. engineer to a decade in jail for stealing proprietary data from Taiwan Semiconductor Manufacturing Co., the chipmaker to Nvidia and beating heart of the Taiwanese economy. In November, prosecutors raided the residences of a former TSMC executive suspected of leaking trade secrets to Intel Corp.
And last June, after years of Washington telling Taipei that Chinese chip champion Huawei is aiding the mainland People’s Liberation Army, the Lai administration came to that determination itself. It blacklisted both Huawei and its production partner SMIC, barring Taiwanese firms from doing business with the Chinese entities without government permission.
If Taiwan moves forward on making AI chip smuggling a criminal offense, it would stand apart in a region that’s long been under US pressure to prevent China from accessing banned technology — but where governments also have to manage their own relations with the world’s second-largest economy.
Take Malaysia, which the US has long worried is a waypoint for Nvidia chips to get to China. The Southeast Asian nation last year agreed to fully match US curbs on AI processors as part of a broader so-called reciprocal trade agreement, a significant step after months of talks.
But it’s unclear whether Malaysia has taken any steps toward implementing that policy — particularly after comments by the nation’s trade minister called into question the status of the overall accord. The Ministry of Investment, Trade and Industry in Kuala Lumpur declined to comment.
Singapore, meanwhile, hasn’t indicated an interest in imposing AI chip controls, instead choosing to address semiconductor diversion via existing local laws — albeit while reminding businesses that they need to follow US semiconductor curbs.
Singapore is currently prosecuting several individuals for defrauding AI server suppliers about the ultimate destination of hardware first sent to Malaysia, a case with echoes of the Taiwan prosecution focused on falsified documents.
