Taiwan Adds New Export Controls on China’s Chip Industry

The recent salvo of export control measures against China’s semiconductor industry came not from the United States, but Taiwan. On June 14, Taiwan’s Ministry of Economic Affairs added a total of 601 entities to its trade blacklist – including China’s Huawei and Semiconductor Manufacturing International Corporation (SMIC), alongside organizations like al-Qaida and the Taliban. This move will require Taiwanese companies to obtain government licenses in order to ship to SMIC or Huawei. Though the International Trade Administration of Taiwan highlights larger national security considerations, the move signifies Taiwan’s rising position in the global chip supply chain.

Taiwan’s strategic value in the global semiconductor supply chain derives from its near-monopoly over cutting-edge chip manufacturing. For decades, its predominant position in the global chip value chain, especially through TSMC, has left both the United States and China economically and technologically dependent on Taiwan, arguably preventing cross-strait tensions from escalating to a forceful military occupation by China. The blacklisting of Huawei and SMIC signifies a conscious shift in Taiwan’s role from a neutral supplier in the tech ecosystem to an assertive actor holding a crucial position in the global supply chain. 

In addition to that, there are two reasons why Taiwan’s move to restrict exports to SMIC and Huawei remains significant. First, this policy is unfolding at a time when the current U.S. policies appear to be more inward-looking, and Washington’s attention to tightening export controls remains low. Second, China’s two chip giants, Huawei and SMIC – specializing in the design and foundry sectors, respectively – are making coordinated strides at bypassing the controls and achieving breakthroughs in independent innovation. 

Chinese companies’ breakthroughs – indicating rising indigenous chip development capabilities – often highlight their ability to bypass U.S. sanctions. TSMC’s business with Chinese companies, despite U.S. sanctions, was seen as a major loophole; TSMC chips are reportedly found in Huawei products. Taiwan’s blacklisting of exports to these Chinese firms now tightens the grip of U.S. policies, plugging a key gap in the export control regime that had previously allowed Chinese firms to access critical components via indirect routes. 

This move also cannot be seen as a standalone initiative, as the U.S. increases pressure on Taiwan to decouple supply chains away from China. Taiwan’s apparent attempt to recalibrate more firmly with the West-led tech supply chain also reflects a shift in domestic policy. While past Taiwanese governments maintained a degree of ambiguity to protect commercial interests with China, the current administration under President Lai Ching-te has demonstrated a greater willingness to align explicitly with U.S. technology policy. Standing more firmly with the United States and its allies opens the door for enhanced cooperation in securing chip manufacturing, research collaboration, and defense-oriented technology transfer.

This development also enhances Taiwan’s narrative of producing “democracy chips.” Lai has urged the formation of a democracy chip alliance in order to distinguish Taiwan from authoritarian tech ecosystems. By banning exports to Huawei and SMIC, the two companies infamous for their close association with China’s military-civil fusion and surveillance apparatus, Taiwan is looking to reinforce its position as a responsible, values-driven actor in the global supply chain – one that is committed to slowing China’s tech ambitions. However, an excessive focus on political power plays could expose Taiwan to greater external security risks, especially concerning cross-strait relations.

While a direct restriction on supply of materials from Taiwan may cover some of the current loopholes in export controls, it is unlikely that it can entirely restrict the supply of chips to China. China has previously demonstrated the ability to reroute critical imports through third-party intermediaries or develop local substitutes via shell companies. While China has adapted its domestic ecosystem to work around such sanctions, another direct blockade from Taiwan will further incentivize a renewed drive toward gaining self-reliance in high-end computing chips. 

However, a licensing regime may impact the current trade channels. Firms that rely on Chinese markets for scale and Taiwanese technologies for quality will face increasingly difficult choices. In the short term, this could lead to heightened volatility and even production disruptions in specific industries, especially those reliant on high-performance computing. 

Though Taiwan’s export restrictions on Chinese companies are nothing new, blacklisting Chinese chip giants signals a reversal from a position that thus far had remained ambivalent. Taiwan’s strategic bet is that by clearly choosing sides, it can embed itself deeper into Western supply chains. What is clear, however, is that the battle lines in the tech cold war have been redrawn with Taiwan now standing firmly on one side of the divide.