TSMC Faces US Export Restrictions — Halts AI Chip Supply to China

Key Takeaways

• In October, parts made by the Taiwan Semiconductor Manufacturing Company (TSMC) were discovered in a Huawei AI processor.
• Now, the U.S. has ordered TSMC to suspend shipments of some 7nm chips to China.
• In response to sanctions, Chinese firms are scaling domestic manufacturing.

The U.S. has ramped up sanctions against China to curb the nation’s technology capacity, ordering the Taiwan Semiconductor Manufacturing Company (TSMC) to halt shipments of advanced chip designs.

The latest order is the most blanket restriction imposed so far, targeting not just the high-capacity GPUs that were the initial focus of sanctions but smaller components that China could use to make its own AI chips.

AI Chip Sanctions Extended

Until now, U.S. semiconductor export controls generally covered two categories: advanced AI chips and manufacturing equipment.

However, the recent order affecting TSMC, which was reported by local media on Friday, Nov. 8, marks a significant escalation of the sanctions.

According to Ijiwei, a Chinese news site covering the semiconductor industry, TSMC notified GPU and AI chip designers in China to suspend orders for components made using 7nm or smaller processes from Nov. 11.

The action follows the discovery that TSMC-made parts were used in Huawei’s Ascend 910B, an AI processor the sanctioned Chinese company has positioned as an alternative to Nvidia GPUs.

China Accelerates Domestic Production

With U.S.-led sanctions exerting significant pressure on China’s ability to produce all but the most basic processors, the country has sought to advance domestic manufacturing capacity.

In 2022, the Chinese Semiconductor Manufacturing International Corporation (SMIC) became the first chip maker in the country to perfect the 7nm process. Then, in 2023 it reportedly broke through the 5nm barrier too.

In what could be a major blow to Taiwanese and South Korean manufacturing supremacy, the CEO of Dutch chip equipment maker ASML recently speculated that Chinese firms may even have cracked the cutting-edge 3nm process.

Crucially, these milestones were achieved without the advanced lithography equipment that gives Samsung and TSMC their edge.

Reducing Dependency on Taiwan

While the presence of Taiwanese chips in Huawei’s AI processor suggests the firm still can’t source everything it needs from SMIC, China is fast filling the gaps in its semiconductor supply chain.

However, Huawei isn’t the only company that is looking to reduce its reliance on a handful of Asian chip hubs.

In the U.S., the CHIPS Act has spurred a manufacturing investment spree that is expected to create 16 new fabrication plants in the coming years.

Although Donald Trump has floated the prospect of suspending at least some CHIPS Act subsidies, recent remarks on Joe Rogan’s podcast suggest he will continue to promote U.S. chip manufacturing as a way to secure domestic supply chains and wean U.S. firms off their reliance on Taiwan.