Feb 27 (Reuters) - U.S. President Donald Trump's nominee

to a post overseeing export policy on Thursday called reports

about Taiwan Semiconductor Manufacturing Co ( TSM ) producing

hundreds of thousands of chips that went to China's Huawei, a

"huge concern."

Jeffrey Kessler, Trump's pick for under secretary of

commerce for industry and security, was asked at his nomination

hearing before the Senate Banking Committee about the reported

illegal shipments of chips and his approach to export control

policy and improved enforcement.

"This is obviously a huge concern," Kessler said. "It's

critical to ensure that we have strong enforcement."

The Commerce Department's Bureau of Industry and Security,

which he would oversee, should use "the full scope of

enforcement and penalty authorities that it has," he said.

The U.S. and China are locked in a technology war, with AI

capabilities now at the center of the battle for dominance and

military capabilities. The United States leads in both AI

development and chip design, but it is unclear whether China is

months or years behind.

Huawei, which is at the center of China's AI

ambitions, is on a Commerce Department trade list that

essentially bars it from receiving U.S. goods and technology, as

well as foreign-made goods such as chips from companies like

TSMC made with U.S. technology.

In October, TechInsights, a Canadian tech research firm,

took apart Huawei's 910B AI processor and found a TSMC chip in

it. The multi-chip 910B is viewed as the most advanced AI

accelerator mass-produced by a Chinese company.

TSMC suspended shipments to China-based chip designer

Sophgo, whose chip matched the one in the Huawei 910B and, in

November, as Reuters reported, the Commerce Department ordered

TSMC to halt shipments of more chips to Chinese customers.

About the same time, there were media reports about Sophgo

ordering hundreds of thousands of chips.

TSMC did not immediately respond to a request for comment on

the hearing. In a statement on Wednesday, a spokesperson said it

was "a law-abiding company" and has not supplied Huawei since

mid-September 2020.