Days after Super Micro co-founder Yih-Shyan Liaw and another Taiwan national were arrested in the U.S. for allegedly trying to send advanced artificial intelligence (AI) hardware as well as technology to China, the spotlight has fallen on a new bipartisan law ‘National Chip Security Act’.
The act, when introduced, would require American made advanced chips to be equipped with location-verification capabilities, essentially building a tracking mechanism. There have been increased demands for stricter legislation on chip production in the U.S. with its direct competition China relying on open source models and relationship with Taiwan.
The recent Super Micro ‘AI espionage’ case shines light on the National Chip Security Act (S. 1705 / H.R. 3447) and its relevance in today’s AI global dominance race.
What is Super Micro AI China Espionage Case?
US authorities have charged Liaw, the co-founder of Super Micro, an American firm that designs and builds high performance computer servers for AI and cloud computing applications, and two other Taiwanese nationals for allegedly conspiring to “divert high performance computer servers” assembled in the U.S. and integrating U.S. AI technology to China.
According to U.S. authorities, this is likely the biggest export control violation in American history and 71-year-old Liaw is facing 30 years in prison. The chargesheet says that Liaw had conspired with two other accused to manufacture and assemble servers at his company’s facility and later sell them to customers in China using Taiwan as a dummy route.
“The defendants participated in a systematic scheme to divert massive quantities of servers housing U.S. artificial intelligence technology to customers in China. They did so through a tangled web of lies, obfuscation, and concealment—all to drive sales and generate revenues in violation of U.S. law,” said U.S. Attorney Jay Clayton for the Southern District of New York.
What is the National Chip Security Act?
The National Chip Security Act (H.R. 3447 / S. 1705) is a bipartisan bill introduced in Congress that would require American made advanced chips to be equipped with location-verification capabilities, essentially building a tracking mechanism.
The bill was introduced by Sen. Tom Cotton (R-Ark.) in the Senate and Rep. Bill Huizenga (R-Mich.) in the House in May 2025. Lawmakers from both parties support it. The goal is to stop people from finding loopholes like using third countries or fake buyers.
The act will require any “covered integrated circuit product to be outfitted with chip security mechanisms that implement location verification, using techniques that are feasible and appropriate on such date of enactment, before it is exported, reexported, or in-country transferred to or in a foreign country.”
Additionally, any person that has received a license to export, reexport, or in-country transfer a covered integrated circuit product to promptly report to the Under Secretary of Industry and Security, if the person obtains credible information that the product—
(A) is in a location other than the location specified in the application for the license or other authorization;
(B) has been diverted to a user other than the user specified in the application; or
(C) has been subjected to tampering or an attempt at tampering, including efforts to disable, spoof, manipulate, mislead or circumvent location verification mechanisms or other chip security mechanisms.
National Chip Security Act Bill Receives Push Back
The bill is already facing significant pushback with the Semiconductor Industry Association warning that the legislation brings a complex, costly and unproven security measure to chips, which can undermine America’s position in the semi-conductor industry.
Companies are viewing the bill as excessive government regulation in a sector that is witnessing a tussle between US and China over dominance.
If passed, the bill would increase penalties for breaking export laws, improve tracking of where advanced chips go, and make it harder to hide the final destination of sensitive technology.
Also Read: Washington Calls It “Promoting Secure Exports.” But Is It a Chokehold on Global AI?
