U.S. Orders TSMC to Halt Shipment of High-performance Chips to Chinese Customers

The U.S. has intensified its measures to restrict advanced semiconductor technology from reaching Chinese companies by ordering Taiwan Semiconductor Manufacturing Co. (TSMC) to halt shipments of high-performance chips to certain Chinese customers, CNBC reports, citing sources.

The Commerce Department’s latest directive, effective this Monday, targets advanced chips, specifically those of 7 nanometers or more sophisticated designs, typically used in artificial intelligence (AI) and graphics processing units (GPUs). This move is the latest in a series of restrictions meant to curb China’s AI and semiconductor advancements, particularly in light of recent discoveries linking these chips to Huawei, a Chinese tech giant long under U.S. trade restrictions.

The impetus for this clampdown began last month when TSMC notified the Commerce Department that one of its advanced chips had been discovered in a Huawei AI processor, as reported by Reuters. Huawei, on the U.S. restricted trade list since 2019, requires special licenses from suppliers for any U.S.-origin technology. The Department’s letter to TSMC effectively halts any shipments of chips that could potentially aid Huawei’s AI-related efforts without following the formal rule-making process.

Further compounding the concern, the chip used in Huawei’s processor was revealed by Tech Insights, a tech research firm, after dissecting Huawei’s Ascend 910B processor. Released in 2022, the Ascend 910B is the most advanced AI processor currently available from a Chinese firm. How TSMC’s chip ended up in the Huawei processor remains unclear, but the discovery raised red flags within the Commerce Department, given that any license aiding Huawei’s AI capabilities would likely have been denied.

In response, TSMC has already suspended shipments to other Chinese chip design firms, such as Sophgo, whose chips matched those found in the Huawei processor, according to sources. Sophgo’s chips had apparently been intended for Huawei’s AI processor, raising concerns about potential diversions and underscoring the need for rigorous oversight.

Beyond TSMC and Huawei, this latest “is informed” letter signals that the U.S. is broadening its surveillance to ensure that no companies bypass export restrictions. TSMC has informed its Chinese clients that it will suspend shipments of 7-nanometer or below chips intended for AI and GPU uses beginning November 11, according to a report from the Chinese media site Ijiwei. The move will disrupt several Chinese companies’ plans as the U.S. takes further steps to address the transfer of critical technology to China.

The letter to TSMC reflects bipartisan concerns in the U.S. over the effectiveness of current export controls to China. Lawmakers across party lines have repeatedly raised concerns that the Department’s current export control system falls short, with calls for tighter rules and more vigilant enforcement. This issue has received added urgency following revelations last year that Nvidia and AMD were restricted from exporting advanced AI-related chips to China, while key semiconductor equipment makers like Lam Research, Applied Materials, and KLA were barred from selling advanced manufacturing tools to Chinese customers. Following those restrictions, the Department updated its guidelines to apply to a wider range of companies, not just those named in the original letters.

Though the Biden administration drafted new rules to further limit tech exports to China, including plans to add 120 Chinese companies to the restricted entity list, these regulations have faced significant delays. Originally slated for release in August, with tentative publication dates thereafter, the new rules remain stalled. The delays have allowed Chinese companies to continue sourcing advanced semiconductor technology and manufacturing equipment, adding to the pressure on the U.S. government to act quickly in light of Huawei’s recent gains in the AI domain.

TSMC, a major supplier of advanced chips and a “law-abiding company,” has indicated its commitment to complying with all U.S. export controls but refrained from commenting further on the latest Commerce Department order. As it stands, the Commerce Department’s “is informed” letter mechanism allows the U.S. government to bypass lengthy regulatory processes, enabling it to swiftly impose new export restrictions without extensive rule-making.

This intensified approach signals that the U.S. is intent on closing any potential loopholes that Chinese firms might exploit to access advanced AI and GPU technology. However, the ongoing delay in finalizing broader export control regulations may give Chinese tech companies room to maneuver. The effects, which highlight the challenges that companies like TSMC face in navigating U.S.-China trade tensions, are expected to impact China’s semiconductor and AI sectors in the short term.