In an exclusive Reuters report they note that Apple supplier Taiwan Semiconductor Manufacturing (TSMC) could face a penalty of $1 billion or more to settle a U.S. export control investigation over a chip it made that ended up inside a Huawei AI processor.

The U.S. Department of Commerce has been investigating the world's biggest contract chipmaker's work for China-based Sophgo, the sources said. The design company's TSMC-made chip matched one found in Huawei's high-end Ascend 910B artificial intelligence processor.

Huawei -- a company at the center of China's AI chip ambitions that has been accused of sanctions busting and trade secret theft -- is on a U.S. trade list that restricts it from receiving goods made with U.S. technology.

The $1 billion-plus potential penalty comes from export control regulations allowing for a fine of up to twice the value of transactions that violate the rules, the sources said.

Because TSMC's chipmaking equipment includes U.S. technology, the company's Taiwan factories are within reach of U.S. export controls that prevent it from making chips for Huawei, or producing certain advanced chips for any customer in China without a U.S. license.

Penalizing TSMC comes at a critical moment for U.S.-Taiwan relations as the two begin re-negotiating their trading relationship after Trump last week slapped a 32% levy on imports from Taipei. The tariffs exclude chips, but Trump has said his team is looking at levies on semiconductors.