By Grace Kim

Chip smuggling into China has become a persistent feature of global trade, and it exposes a hard truth: export controls cannot seal a supply chain that spans dozens of jurisdictions. A recent analysis by IMD, titled "The long way to China: What chip smuggling reveals about trade today," examines how restricted semiconductors keep reaching Chinese buyers through indirect routes.

The piece argues that the physical path of a smuggled chip tells a commercial story. Advanced devices travel through intermediary markets before arriving in China. Each stop adds cost and risk. None of it stops the transaction.

Why does smuggling persist despite export controls?

The answer is price and scarcity. Restricted chips command a premium in China because legal access is blocked. That premium funds the smuggling networks. Buyers pay it because the alternative is waiting for domestic substitutes that are not yet competitive at the leading edge.

IMD frames the phenomenon as a test of policy design. Controls written in one country must be enforced across many. Chips are small, high-value and easy to move. Enforcement therefore depends on paperwork, intermediaries and customs regimes that vary widely by jurisdiction.

The analysis draws a clear lesson. When demand is strong and supply is concentrated, restrictions redirect trade rather than eliminate it.

What does this mean for the supply chain?

The commercial picture changes in three ways.

• Restricted parts reach Chinese buyers at higher cost through third countries.
• Intermediary markets gain revenue and visibility as transit hubs.
• Compliance burden rises for legitimate distributors, who must trace every shipment.

This is the core finding of the IMD piece. Trade controls reshape routes and margins. They do not remove the underlying demand.

Who bears the cost?

Smuggling costs distribute unevenly. Chinese buyers pay inflated prices. Suppliers outside the restricted zone capture the markup. Regulators spend more on enforcement. And chipmakers lose direct visibility into where their products end up.

IMD's account treats this as a structural condition, not a temporary leak. As long as advanced chips remain both restricted and irreplaceable, the incentive to move them illegally will persist.

The analysis closes on a forward note: the effectiveness of future trade policy will depend less on the rules themselves and more on whether the industry builds verifiable, end-to-end tracking of where every restricted chip actually lands.

This article summarizes and reflects the analysis published by IMD under the title "The long way to China: What chip smuggling reveals about trade today."