When three men were charged in Singapore last month over an alleged $390 million fraud, the goods at the centre of the investigation were not money or precious jewels, but silicon chips.
The men, including a Chinese national, were accused of defrauding the American companies Dell and Super Micro by buying their servers, believed to contain sought-after Nvidia silicon chips, and falsely representing where they would end up.
The case has shone a spotlight on how China is potentially using third-party nations to get around US export restrictions and smuggle valuable American advanced chips into the country.
The charges came a week after the US was reported to be investigating whether China’s DeepSeek had used third parties in Singapore to get around its chip export curbs.
Amid all of the noise around President Trump’s widespread tariffs, more of which will be unveiled on Wednesday, the material that America really needs to protect in its trade war to preserve economic exceptionalism and military strength is advanced silicon chips, commonly known as semiconductors.
Even as questions are raised by DeepSeek’s claim of being able to compete with America’s large language models artificial intelligence software using lower-grade chips, it is widely recognised that the most advanced chips designed by US companies will be needed for the country to lead in innovation around quantum computing, aerospace, cyber security, humanoid robotics and autonomous weapons systems used by the military.
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So far, the US government has been ineffective at preventing advanced chips from reaching strategic rivals. Restricted Nvidia chips have been reaching Russia via India, according to a Bloomberg investigation last year. American chips are suspected to have been used in Russian drones deployed in Ukraine.
Last week, the Trump administration made its first move in limiting China’s advances in AI, by adding dozens of Chinese entities to its export restriction list. However, it will need to take further action to clamp down on the semiconductor black market.
Alex Capri, a senior lecturer at National University of Singapore and author of Techno-Nationalism: How It’s Reshaping Trade, Geopolitics and Society, said: “The way most chips are smuggled into China is, first and foremost, they are sent to a front company, and that company may very well be listed as part of a larger legally known conglomerate. Then that company simply turns around and routes the chip.”
He said the chips are generally embedded in a server or another piece of equipment. Capri sees the potential for the Trump administration to threaten to increase tariffs on countries that don’t clampdown on restricted US chips being routed through their countries to reach China.
Malaysia could come under the spotlight soon, he believes, because Chinese companies have been involved in building data centres there and renting cloud computing space from third parties so they don’t have to acquire leading-edge Nvidia chips but can still access their computing power.
“It’s not inconceivable that the Trump administration will use tariffs as a blunt instrument when trying to achieve certain behavioural outcomes around export control enforcement,” Capri said. Countries caught in the middle, such as Japan, South Korea and Taiwan, will probably be expected to choose sides when supporting major technologies that require the most advanced chips.
All of this poses challenges for corporate supply chains. Under existing legislation, companies ask entities in their supply chain to say who the end user is for their technology and what the end use is for, as well as declaring that they won’t be providing it to third parties. However, it is very difficult to verify the end user. That could mean more investment in so-called radio-frequency identification technology that allows a speck of material to be implanted on a chip so it can be traced.
American policymakers will be hoping that China stays far behind in the race to produce the most advanced chips. China does not currently have access to extreme ultraviolet lithography (EUVL) machines, which are primarily manufactured by ASML, the Dutch semiconductor giant, and are used by Nvidia to create complex patterns on advanced semiconductor chips. ASML has been banned from selling its most advanced EUV machines to China. However, Huawei is working on a rival EUVL product.
If Trump wants to continue the narrative of US exceptionalism, his trade agenda should focus on how America’s home-grown technology can be protected.
Louisa Clarence-Smith is US business editor
