Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest independent semiconductor foundry, has announced it will stop supplying advanced artificial intelligence chips to Chinese customers, marking a significant escalation in US-China tech tensions. Starting Monday, TSMC informed Chinese clients that it would cease manufacturing AI chips at advanced process nodes of 7 nanometers or smaller, according to multiple sources familiar with the matter.
The decision directly impacts major Chinese tech giants including Alibaba and Baidu, both of which have been leading China’s efforts to develop domestic alternatives to Nvidia, currently the world’s most valuable company and dominant player in AI chip technology. Any future chip supplies to Chinese companies would require an approval process likely involving Washington, effectively giving the US government veto power over these transactions.
TSMC’s move comes as the Biden administration prepares to introduce a new wave of export controls on chip supplies to China in the coming months. Sources indicate the company is taking proactive measures to “start mitigating before there are solid, structured regulations” are implemented. Despite the significant policy shift, insiders suggest the decision will not majorly affect TSMC’s overall revenue.
The timing is particularly sensitive following recent scrutiny of TSMC’s supply chain. Reports emerged that the company’s chips were discovered in products manufactured by Huawei Technologies, a Chinese firm currently under US export controls. The US Commerce Department is actively investigating this incident, and sources indicate Friday’s decision was influenced by the need to tighten internal controls and demonstrate compliance.
Looking ahead, TSMC may face challenges with President-elect Donald Trump, who has criticized Taiwan’s chip-manufacturing sector for allegedly taking US business. Trump has suggested TSMC should relocate production to the US after receiving billions in subsidies for building American manufacturing hubs. However, TSMC confirmed to Reuters that its US investment plan “remains unchanged.” A source characterized the decision as “not a show for Trump but definitely designed to underscore that we are the good guys and not acting against US interests.”
Key Quotes
We want to start mitigating before there are solid, structured regulations
A person familiar with the matter explained TSMC’s proactive approach to the Financial Times, revealing the company is moving ahead of expected Biden administration export controls rather than waiting for formal regulations to be implemented.
not a show for Trump but definitely designed to underscore that we are the good guys and not acting against US interests
An insider source told the Financial Times this characterization of TSMC’s decision, emphasizing the company’s intent to demonstrate alignment with US national security interests amid heightened geopolitical tensions and the incoming Trump administration.
we are a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls
TSMC’s official statement to Business Insider, while not confirming the specific reports, emphasized the company’s commitment to regulatory compliance and adherence to export control laws.
Our Take
This decision represents a watershed moment in the AI chip wars and signals TSMC’s strategic pivot toward closer alignment with US interests. The move effectively weaponizes semiconductor supply chains in the broader US-China technology competition, with AI chips becoming the new battleground. TSMC’s proactive stance—moving before formal regulations—suggests the company recognizes the existential importance of maintaining US support, especially given its reliance on American technology and subsidies. This will accelerate China’s push for semiconductor self-sufficiency while potentially fragmenting the global AI ecosystem into competing technological spheres. The implications extend beyond geopolitics: companies worldwide must now navigate an increasingly bifurcated technology landscape where access to cutting-edge AI capabilities depends on political alignment as much as commercial relationships.
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Source: https://www.businessinsider.com/tsmc-suspend-ai-chip-production-china-us-2024-11