Taiwan to Criminalize AI Chip Smuggling to China Under US Trade Deal

Taiwan is preparing to tighten export controls on artificial intelligence chips to align with United States restrictions, according to a senior official in Taipei. The move joins a Trump administration clampdown on the smuggling of cutting-edge semiconductors to China.

New Legal Penalties

Taiwan’s Minister of Economic Affairs Kung Ming-hsin told Bloomberg News that Taipei plans to add artificial intelligence servers and cutting-edge semiconductors to a list of controlled items. After the measures take effect, shipping restricted AI hardware to China will become a criminal offense under the Foreign Trade Act.

"Going forward, some of our measures on controlled items will correspond to American ones because we have made quite some commitments in the Agreement on Reciprocal Trade," Kung said in an interview on Oct. 12. He referred to the trade deal that the US and Taiwan signed this year but declined to elaborate on when the government will implement the new measures.

Currently, Taiwan does not treat unauthorized AI chip exports to China as a crime. While officials warn potential sellers that they may be violating US rules, the only legal recourse through the island's courts is to charge suspected smugglers with violations of other, existing local laws. Once the new measures are in place, the controls would be among the strictest measures from President Lai Ching-te's administration to safeguard Taiwan's technological and national security interests.

Context of US Restrictions

The US has long restricted Chinese purchases of AI chips from Nvidia Corp. and Advanced Micro Devices Inc., but companies in China have still managed to get their hands on the coveted accelerators through a sophisticated black market. US officials have alleged that billions of dollars' worth of Nvidia hardware has made its way to China over the past few years.

According to Investing.com, employees of server maker Super Micro Computer were implicated in a major Department of Justice investigation this year for allegedly smuggling at least $2.5 billion worth of Nvidia chips into China. The plot also implicated Super Micro co-founder Yih-Shyan Liaw, who was arrested by the DOJ. Nvidia employees in Taiwan were also implicated in a smuggling ring.

Industry and Market Impact

The shift aims to address chip smuggling risks and give authorities more legal tools to address the diversion of advanced hardware, chiefly AI servers with Nvidia chips, from Taiwan to China. This move risks drawing more ire from Beijing, which has already balked at strict US restrictions on AI chip exports to China first imposed in 2022.

Newsquawk notes that export controls on advanced semiconductors to China have been built up iteratively in recent years, with Washington pressing partners to align their own regimes. Framing the move as part of a US trade deal follows an established sequence in which alignment on technology controls is exchanged for tariff relief or trade concessions.

Why it matters

This development marks a significant escalation in the enforcement of semiconductor export controls. By criminalizing the smuggling of AI hardware, Taiwan is moving from regulatory warnings to active prosecution, significantly raising the stakes for illicit trade networks. The alignment with US policy underscores the deepening integration of Taiwan's semiconductor sector into US national security strategies, potentially impacting global supply chains and diplomatic relations with China.

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Sources

• uk.finance.yahoo.com: Taiwan to Curb AI Chip Exports to China as Part of US Trade Deal
• newsquawk.com: Taiwan is to curb AI chip exports to China as part of the US trade deal, Bloomberg reports | Newsquawk
• finance.yahoo.com: Taiwan to curb AI chip sales to China for more U.S. alignment- Bloomberg
• cryptobriefing.com: Taiwan moves to curb AI chip exports to China under US deal

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.