Taiwan Semiconductor Manufacturing (NYSE:TSM) shares fell around 1% in premarket trading on Tuesday following a Bloomberg report that Taiwan is evaluating stricter controls on the export of advanced artificial intelligence chips to China.
If implemented, the proposed measures would mark one of the most significant steps taken by President Lai Ching-te’s administration to protect Taiwan’s technological leadership and address national security concerns.
According to Bloomberg, citing sources familiar with the discussions, 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 Technologies.
The proposals are reportedly being discussed as part of broader trade negotiations with the United States and would, for the first time, provide Taiwan with legal authority to prosecute unauthorized exports of advanced AI chips to China as a criminal offense.
While U.S. regulations already prohibit certain sales of advanced semiconductors to China, Taiwan currently does not classify such exports as criminal violations under domestic law. This has limited the ability of local authorities to pursue enforcement actions. Taiwan’s first publicly known detentions linked to alleged semiconductor smuggling occurred only last month and involved narrower allegations related to document falsification.
Under the framework under consideration, Taiwan would restrict exports of AI chips that exceed a specified computing performance threshold to Chinese buyers. The approach would closely resemble export controls introduced by Washington beginning in 2022.
The report noted that 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 discussions come as U.S. policymakers increasingly focus on preventing advanced computing hardware from reaching China through indirect channels. Concerns have grown over shipments of AI servers equipped with Nvidia chips being diverted from Taiwan to Chinese entities.
Last week, the Trump administration moved to address what it viewed as a potential loophole that could allow advanced semiconductors to be supplied to overseas subsidiaries of Chinese companies.
Separately, U.S. senators Jim Banks of Indiana and Andy Kim of New Jersey sent a letter on Monday to Jeffrey Kessler, head of the Bureau of Industry and Security, urging regulators to tackle the practice of Chinese firms using overseas subsidiaries to order custom-designed chips from contract manufacturers such as TSMC.