Taiwan considers tightening exports of AI chips to China

Taiwanese authorities are considering imposing much stricter export controls on the sale of artificial intelligence chips to China in an effort to further align with U.S. measures, according to people familiar with the matter. The initiative seeks to combat semiconductor smuggling, but risks provoking a reaction from Beijing.

The idea is to give authorities more legal instruments to deal with the diversion of advanced hardware — such as AI servers equipped with Nvidia chips — from Taiwan to China. Such sales are already banned under U.S. rules unless the companies get authorization from Washington under restrictions first imposed in 2022 to prevent Beijing from using Nvidia’s advanced processors to gain military advantage.

Taiwan, however, does not consider the unauthorized export of AI chips to China a crime. Although Taiwanese authorities warn potential sellers that they may be violating American rules if they go ahead with the operation, the only legal avenue available in the island’s courts today is to charge smugglers suspected of violating other existing local laws.

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This is a more difficult level to reach, which reduces the scope of cases that Taiwan can pursue today. Last month, Taiwanese authorities made the first known arrests of suspected chip smugglers on charges of falsifying documents.

Now, as part of ongoing trade talks with the U.S., officials in Taipei are considering imposing much tougher controls on AI chips that would restrict sales to all customers in China — not just specific companies on export restriction lists like Huawei, said the sources, who requested anonymity to discuss a sensitive matter. This would allow Taiwan to prosecute the smuggling of AI chips into China as a criminal offense for the first time.

If implemented, the controls would be among the broadest measures yet adopted by President Lai Ching-te’s government to protect Taiwan’s technological and national security interests, as Taipei tests how far it is willing to go with more assertive policies — and manages pressure from American officials on several fronts. TSMC shares traded in the US fell as much as 1.1% before reducing losses in pre-market trading.

There is still a lot to be defined. Taiwan has agreed to broadly follow the U.S. approach and should restrict sales to China of AI chips with processing power above a certain threshold — similar to what Washington does, one of the sources said. But Taipei has not yet fully decided how far it will go in adopting American policies, according to the person, who added that there are still details to be finalized before senior officials on both sides can review and approve the potential deal.

Representatives from the American Institute in Taiwan — the de facto U.S. embassy — did not respond to requests for comment. Nvidia did not respond to a request outside of business hours. Taiwan’s Ministry of Economic Affairs said it will continue to strengthen oversight of “strategic high-tech goods” to better align with international export controls.

“At present, Taiwan and the United States continue to consult on issues such as the inclusion of advanced chips under regulatory control,” the ministry said in a statement to Bloomberg News.

Any move to restrict the sale of AI chips is likely to provoke a backlash from Xi Jinping’s government in China, which considers Taiwan part of its territory — a characterization firmly rejected by the island’s autonomous democracy.

Last year, when Taiwan included Huawei and SMIC, the main Chinese chipmaker, on its restriction list, a spokesperson for the Chinese Ministry of Foreign Affairs stated that “the DPP authorities’ slavish and sycophantic stance towards the US will only harm and ruin Taiwan’s interests”, in a reference to Lai’s Democratic Progressive Party.

New restrictions against China could also affect industry executives and companies in Taiwan, which is home to most of the world’s AI chip manufacturing — as well as many of the companies that assemble Nvidia’s processors into servers, installed by the thousands in data centers to train and operate artificial intelligence models. Taiwanese authorities have not accused any companies of wrongdoing.

It’s a delicate balance — and leaders in Taipei have already expressed unease about restricting a sector that helped turn Taiwan into the world’s fifth-largest stock exchange.

Last year, Taiwan restricted the export of AI chips to South Africa during a dispute over the location of the island’s de facto embassy in the country — only to backtrack two days later. Shortly after, Foreign Minister Lin Chia-lung said that Taiwan does not want to weaponize semiconductors, although he stressed that “if our interlocutors harm our interests, we will need to respond.” At the time, Beijing criticized Taiwan’s stance.

Last month, when Taiwan arrested suspected chip smugglers on charges of falsifying documents, the press release mentioned neither the alleged transit point — Japan — nor authorities’ suspicion that the defendants had already managed to send at least one batch of servers there before shipping them to Hong Kong.

At the same time, Lai promised last year to respond to unspecified U.S. concerns about export controls. Under his administration, Taiwanese authorities have taken an increasingly tough stance on protecting the island’s technology sector.

In April, a Taiwanese court sentenced a Tokyo Electron Ltd. engineer to ten years in prison for stealing proprietary data from TSMC, an Nvidia supplier and the heart of the Taiwanese economy. In November, prosecutors searched the homes of a former TSMC executive suspected of leaking trade secrets to Intel.

And last June, after years of hearing from Washington that Huawei was helping China’s People’s Liberation Army, the Lai government came to the same conclusion on its own. Taiwan has placed both Huawei and its production partner SMIC on its restricted list, prohibiting Taiwanese companies from doing business with these Chinese companies without government authorization.

If Taiwan moves forward to turn smuggling of AI chips into a crime, the country will stand out in a region that has long come under pressure from the U.S. to prevent China from gaining access to banned technology — but where governments also need to manage their own relations with the world’s second-largest economy.

This is the case of Malaysia, which has long raised concerns in the US because it is seen as a transit route for Nvidia chips to reach China. Last year, the Southeast Asian country agreed to fully match American restrictions on AI processors as part of a broader, so-called reciprocal trade agreement, in a significant step after months of negotiations.

But it’s unclear whether Malaysia has taken any steps to implement this policy — especially after comments from the country’s trade minister that cast doubt on the status of the deal as a whole. The Ministry of Investment, Trade and Industry in Kuala Lumpur declined to comment.

Singapore, for its part, has not indicated interest in imposing controls on AI chips. Instead, it has chosen to address semiconductor diversion based on existing local laws — although it continues to remind companies that they need to comply with US restrictions on semiconductors.

Singapore is currently suing several people for fraud against AI server vendors over the final destination of hardware first shipped to Malaysia, in a case that echoes the case in Taiwan centered on document forgery.

© 2026 Bloomberg L.P.