Taiwan's approach to AI chip export controls has, until now, operated through an entity-list model: restrict exports to specific named companies. That system has a structural flaw, and Taipei has finally acknowledged it.
On June 9–10, 2026, Taiwan's Ministry of Economic Affairs confirmed that Taipei and Washington are in active consultations over a landmark expansion of Taiwan's export control regime — one that would restrict AI chip sales to all customers in China above a computing performance threshold, not just blacklisted firms. Crucially, the proposal would make unauthorized AI chip exports to China a crime for the first time under Taiwan law. Current rules leave a critical gap: export violations to non-blacklisted Chinese buyers are not criminal offenses, meaning prosecutors can only pursue smugglers on tangential charges.
That gap became impossible to ignore in May 2026, when Taiwanese authorities made their first known detentions of alleged chip smugglers. Prosecutors could not charge the defendants with exporting controlled chips to China — because Taiwan law simply does not make that a crime for most buyers. Instead, charges were limited to document falsification. The suspects were accused of misrepresenting the destination of AI server shipments, routing them through Japan before sending them onward to Hong Kong and, reportedly, mainland China. This is not an enforcement failure so much as a legislative one. The law does not reach what the government is trying to prevent.
From Blacklists to Threshold Controls
The proposed reform would close this gap by establishing a computing performance threshold modeled on the US Bureau of Industry and Security's October 2022 framework, which introduced ECCN 3A090 to control advanced AI chips based on aggregate bidirectional data transfer rates. Under this system, any chip above the performance threshold requires an export license for China-bound sales regardless of who the buyer is — not just if the buyer is Huawei or SMIC.
Taiwan's adoption of an analogous threshold model would mean that a Taiwanese distributor selling high-performance GPUs to a previously-unknown Chinese data center operator would need prior regulatory approval. Proceeding without it would expose sellers to criminal liability under Article 27 of Taiwan's Foreign Trade Act, which provides for up to five years' imprisonment or fines of up to NT$3,000,000 (roughly US$90,000) for unauthorized exports of strategic commodities to restricted destinations. The controls' legal teeth, in other words, already exist. What Taiwan's proposal adds is a far broader trigger.
The entity-list approach — which Taiwan used in June 2025 when it added Huawei, SMIC, and 601 other foreign entities to its Strategic High-Tech Commodities list under Article 13 of the Foreign Trade Act — was a meaningful step. But it depends entirely on knowing who the bad actors are in advance. Smugglers exploit the gap by routing through intermediaries that do not appear on any list.
TSMC Bears the Compliance Burden
The company most immediately affected by any threshold expansion is TSMC, Taiwan's largest corporation and the world's dominant manufacturer of advanced semiconductors. TSMC already operates extensive customer due diligence programs, and has faced scrutiny after Huawei obtained TSMC-manufactured AI processors through intermediaries in apparent circumvention of US restrictions. A threshold-based regime would require TSMC and other Taiwanese chipmakers to verify end-destination and end-use for every shipment above the performance threshold, not just those going to named entities. The compliance infrastructure this demands is substantial.
TSMC's centrality here is both a feature and a vulnerability of the new approach. As the manufacturer of chips for Nvidia and AMD, TSMC's controls function as a global chokepoint on advanced computing hardware. Taiwan authorities have not accused TSMC of wrongdoing, and TSMC has publicly committed to export control compliance. But asking TSMC to operate as a de facto enforcement arm of Taiwanese and US national security policy concentrates an enormous governance burden on a single private company.
The Security Case Is Not Trivial
The entity-list model has demonstrably failed to contain diversion. May 2026's arrests showed that sophisticated actors route chips through multiple jurisdictions specifically to sidestep named-entity restrictions. When enforcement only applies to blacklisted companies, bad actors simply route sales through unlisted intermediaries — a technique well-documented in US enforcement cases. The US learned this lesson and responded with sweeping threshold controls in 2022 precisely because entity lists cannot address the fundamental problem: the chips themselves are strategically significant regardless of who the immediate buyer is.
Taiwan's Foreign Minister Lin Chia-lung articulated the government's posture: Taipei does not want to "weaponize semiconductors," but it must respond when counterparties act against Taiwan's interests. The circumvention episode created genuine reputational and legal risk for Taiwan's tech sector in Washington. Tighter domestic controls are partly about demonstrating to the US that Taiwan is a serious partner in semiconductor security.
The Proportionality Risk
The legitimate concern is calibration. A blanket threshold approach that catches every Chinese data center operator — including those with entirely commercial use cases — carries significant costs: lost export revenue, legal uncertainty for Taiwanese semiconductor distributors, and diplomatic friction with Beijing. China has already begun retaliating: in response to Taiwan's June 2025 entity list expansion, Beijing placed eight Taiwanese entities on its own export control list. A broader criminalization of chip sales to all Chinese buyers risks escalating these measures and further fragmenting the global semiconductor supply chain Taiwan depends on for its economic security.
Geoffrey Gertz of the Center for a New American Security has noted that Taiwan has shown greater willingness than most other regional partners to implement strict controls — a willingness that reflects its unique strategic position but also its dependence on US security commitments. The June 2026 consultations are taking place within active US-Taiwan trade negotiations, where Taiwan's export control cooperation is part of the bargain.
The right question is not whether Taiwan should criminalize chip smuggling — it should, and the May 2026 arrests underscore why. The question is whether a blanket threshold approach is calibrated correctly, or whether it risks bifurcating the global chip market faster than the security threat demands. The details — what threshold, what exemptions, what due diligence safe harbors for legitimate commercial sales — will determine whether this becomes a proportionate security tool or a structural trade barrier dressed up in national security language.