Taiwan is considering stricter export controls on AI chip sales to China, potentially making unauthorized exports a criminal offense for the first time, according to people familiar with the matter. The proposed measures, which would align with US regulations, aim to prevent the diversion of advanced hardware like Nvidia Corp. chips from Taiwan to China. the move comes amid ongoing trade talks with Washington and has already rattled server assembly firms such as Gigabyte Technology Co. and Asustek Computer Inc.

Criminalizing AI chip smuggling for the first time

Currently, US rules ban such sales without Washington's permission, but Taiwan does not treat unauthorized AI chip exports to China as a criminal violation. The new proposal would change that, marking a significant escalation in Taiwan's efforts to safeguard its technological and national security interests under President Lai Ching-te's administration. In a first known action , Taiwan detained alleged chip smugglers last month on charges of falsifying documents, as the report states.

If enacted, the broader controls would restrict sales to all customers in China, not just those on export blacklists like Huawei Technologies Co. This would put Taiwan on a more aggressive enforcement path,potentially subjecting violators to criminal penalties.

Gigabyte and Asustek shares slide up to 4.4% on Wednesday

The news hit Taiwan's tech sector immediately. Shares of Gigabyte Technology Co. fell by up to 3.2%, while Asustek Computer Inc. dropped 4.4% on Wednesday, according to the source. Both companies assemble Nvidia-powered AI servers and would face tighter oversight under the proposed rules. Taiwan authorities have not accused any companies of wrongdoing, but the market reaction underscores the stakes for an industry that has made Taiwan the world's fifth-largest stock market.

Leaders in Taipei have expressed discomfort with restricting an industry so vital to the economy, as the report notes. Yet the push to align with US regulations appears to be gaining momentum.

Beijing's 'kneeling and ingratiating' accusation from 2023

Any move to curb AI chip sales is expected to trigger a response from China, which views Taiwan as its own territory. Last year, when Taiwan blacklisted Huawei and Semiconductor Manufacturing International Corp., China's foreign ministry criticized the then-ruling Democratic Progressive Party for 'kneeling and ingratiating themselves with the US,' as the report reminds readers. The same rhetoric is likely to resurface, raising the diplomatic temperature.

Foreign Minister Lin Chia-lung has stated that Taiwan does not want to weaponize semiconductors but will respond if its interests are harmed. the delicate balance between security and commerce remains a central tension.

Lin Chia-lung: 'We do not want to weaponize semiconductors'

Foreign Minister Lin Chia-lung told reporters that Taiwan does not want to weapnoize semiconductors but will respond if its interests are harmed, according to the source. this statement reflects Taipei's effort to frame the controls as defensive rather than aggressive. However, Beijing sees any alignment with US export rules as a provocation.

The American Institute in Taiwan, the de facto US embassy, declined to comment, as did Nvidia. Taiwan's Ministry of Economic Affairs stated that it will continue strengthening oversight of strategic high-tech goods to align with international export controls, confirming ongoing consultations with the US regarding the inclusion of advanced chips under regulatory control.

The unfinished deal: what US and Taiwan must still sign off

Final details remain to be ironed out before senior officials on both sides review and sign off on a potential deal, according to the report . Taiwan has agreed in principle to follow the US approach and is likely to impose curbs on AI chips with processing power above a certain threshold, similar to US policies. But the precise threshold, enforcement mechanisms, and timeline are still under negotiation.

What remains unclear is how the new rules will be enforced at scale, whether Taiwan will require licences for all China-bound shipments, and how quickly Beijing will retaliate. The source does not specify the timeline for a decision, leaving a key open question for the industry.