TSMC 'stuck' in the middle of the US-China microchip war

According to Reuters, from November 11, TSMC will suspend the shipment of some advanced AI chips to some mainland Chinese customers. This is said to be due to a request from the US Department of Commerce to impose export restrictions on those products.

Specifically, industry sources said the export restrictions include some types of advanced chips, with designs higher than or equal to 7 nm, used in AI accelerators and graphics processing units (GPUs).

The ministry's restrictions come just weeks after TSMC announced that one of its chips had been found in a Huawei AI processor. Tech Insights, a technology research firm, disassembled the product, finding the TSMC chip and the apparent violation of US export controls. Huawei is currently on the US trade blacklist, one of the most stringent.

Inside TSMC's Innovation Museum in Hsinchu, Taiwan (China). (Photo: Reuters)

The Biden administration has drafted new rules on exports of certain chipmaking equipment, and plans to add about 120 Chinese companies to the Commerce Department's restricted entity list, including chip factories, tool makers and related companies, Reuters reported in July.

In recent years, the US has been tightening restrictions on AI chip exports to China, according to the Global Times. However, businesses are driven by profit, and although TSMC cannot resist US pressure, it will certainly seek flexibility and room for negotiation, said Ma Jihua, a veteran observer of the mainland telecom industry.

Like many other chipmakers, they cannot afford to lose the mainland market, Ma added.

Citing an inside source at TSMC, Taiwan's Economic Daily News reported that "the company is currently discussing how to respond to the new US regulations." The newspaper also quoted an anonymous industry source as saying that TSMC is unlikely to suspend relevant shipments at this time.

TSMC hopes the restriction will only apply to mainland companies whose products involve AI chips, without affecting other customers, such as those in the mobile chip sector, according to local media.

Although the US has tried to isolate China's semiconductor industry in recent years by putting pressure on the world's leading semiconductor companies, the results have not always been as intended.

Peter Wennink, former CEO of ASML, the world's leading manufacturer of photolithography machines based in the Netherlands, made it clear to the media that China accounts for 30% of the company's orders. Despite the export restrictions, ASML will not abandon the billion-people market and will do everything possible to continue selling photolithography machines to China, Sing Tao Daily reported in 2023.

Even if the restrictions on AI chip exports to China are fully implemented, the impact on the country’s AI development will be limited, Ma said. Currently, leading high-tech companies in China have also built up sufficient computing capacity reserves for the industry.

In addition, mainland chip companies have made significant progress in recent years despite continued pressure from the US.

In the first seven months of the year, China's semiconductor exports totaled $89.27 billion, up 25.8 percent year-on-year. Among major export items, this was the second-highest growth rate, after ships, according to data released by the General Administration of Customs of China.

Moreover, China has been steadily increasing its domestic semiconductor production. In 2013, the ratio of domestic production to imports was 32.58%, but by the first half of 2024, the figure had risen to nearly 80%, mainland news site stcn.com reported in August.

Quartz (Source: Reuters, Global Times)

Source