Trump administration pursues bilateral deals with Southeast Asian nations to prevent AI chip smuggling to China.
Over the past two years, Chinese actors have used a gray market network of buyers, sellers, and brokers in Southeast Asia to circumvent U.S. restrictions on cutting-edge chips used for artificial intelligence and other high performance computing applications. Donald Trump laid the groundwork for controls on specialized AI chips in 2020, with restrictions seeking to prevent China from using Western technology for military advantage. The Biden administration substantially expanded the scope of these controls but struggled to stop the rise of AI chip smuggling, with multiple cases over the past year involving bulk shipments worth hundreds of millions of dollars. High-end chips like the Nvidia H100 and B200 are critical for developing advanced AI models and are exclusively manufactured in Taiwan from U.S. designs.
Smuggling cases vary in scale but collectively represent a significant transfer of computing capability. A Chinese student smuggled six Nvidia chips on a flight from Singapore, while a Malaysia-based broker reportedly facilitated a $120 million order for servers powered by state-of-the-art H100 chips. Three Singapore-based men were arrested for allegedly committing fraud concerning servers worth around $390 million. According to a report recently published by the Center for a New American Security (CNAS) and co-authored at the Institute of AI Policy and Strategy (IAPS), smuggled AI chips provided China with more computing power than its domestic AI chips production in 2024. If all these smuggled chips were mounted in standard-size servers, they might occupy several hundred 20-foot shipping containers.
Trump has the chance to seal the deal on the AI chip controls he introduced, pushing Southeast Asian countries toward stronger enforcement using tariffs, which he considers the "most beautiful word in the dictionary." Trump's recent willingness to allow Nvidia and AMD to continue exporting some cutting-edge AI chips to China with a 15 percent tax shows his openness to unconventional arrangements mixing trade measures with export controls. Republican Rep. John Moolenaar, chair of the House Select Committee on China, recently stated that export controls of high-end AI chips to China constitute "a frontline defense in protecting our national security." Both improved corporate due diligence and local export enforcement programs in Southeast Asia would help counter smuggling, but these remain backburner issues for most regional AI chip resellers and customs agencies.
Smuggling tactics include shell companies, bribing customs officials, and concealing chips or servers with other shipments, with elaborate schemes already uncovered in Malaysia and Singapore. A CNAS report identifies Malaysia, Singapore, Indonesia, the Philippines, Thailand, and Vietnam as potential smuggling hotspots due to close commercial ties with China and lax enforcement around AI chip smuggling. The U.S. government can leverage tariff negotiations to push governments to prioritize this issue, while offering partnerships on digital infrastructure and allowing countries that secure imported U.S. AI chips to import more of them, following the model of recent deals with Gulf states. Southeast Asian leaders, accustomed to transactional diplomacy and eager to strike trade deals with the United States, will be motivated to understand how to position themselves for a better bargain.