In a significant escalation of US efforts to limit China’s access to advanced technology, the Department of Commerce has reportedly mandated Taiwan Semiconductor Manufacturing Co. (TSMC) to cease shipments of high-performance AI chips to Chinese customers.

The directive, effective Monday, restricts the export of TSMC’s 7-nanometer and more advanced processors, which are widely used in AI applications, Reuters reported.

The US Commerce Department’s latest move specifically targets chips that can power AI accelerators and GPUs, with a particular focus on halting indirect access to restricted technology by Chinese companies like Huawei, which the US considers a national security threat.

This directive, marking a new chapter in US-China tech tensions, applies to several key players in China’s AI ecosystem, potentially impacting companies beyond Huawei.

TSMC declined to comment on the said matter citing “market rumor.”

“TSMC is a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls,” the chip maker said.

A query to the US Commerce Department did not elicit any response.

In another distantly related development, the Taiwanese government has said that the country’s law prevents TSMC from producing its 2nm chips — TSMC’s hitherto most advanced chip —  abroad.

“Since Taiwan has related regulations to protect its own technologies, TSMC cannot produce 2-nanometer chips overseas currently,” Taipei Times said quoting Minister of Economic Affairs J W Kuo.

Kuo made the remarks while addressing concerns that TSMC may have to accelerate 2-nm chip production in its Arizona fabs following Donald Trump’s re-election as US president.

TSMC is the main supplier of chips, including its most advanced one, for Nvidia and Apple and the US largely depends on the Taiwanese firm to further its technological advancements in the AI space.

TSMC’s involvement: The Huawei incident

This stringent order follows a recent finding that a TSMC-manufactured chip had been integrated into Huawei’s Ascend 910B, an advanced AI processor released in 2022.

A teardown analysis by research firm, Tech Insights, revealed the presence of TSMC technology within Huawei’s product, hinting at an export control violation and triggering the US crackdown.

The revelation prompted TSMC to inform the Commerce Department, shedding light on Huawei’s use of intermediaries to potentially bypass US trade restrictions.

The US directive mandates that any advanced product containing over 25% American technology require an export license — a requirement Huawei circumvented by procuring chips indirectly through third parties.

Impact on Chinese tech giants and the semiconductor market

The directive impacts numerous other entities in China’s technology landscape. In addition to Huawei, major AI-driven companies such as Alibaba and Baidu, which design and use similar processors, will face increased scrutiny.

Although the US regards them as competitors to Huawei, the move aims to curb any potential diversion of restricted technology for unauthorized AI applications in China.

Moreover, the order raises questions about TSMC’s ability to navigate US-imposed restrictions while continuing to serve clients in one of its largest markets.

Reports initially suggested that TSMC’s decision to halt chip shipments was voluntary, but it has since become clear that it was a response to direct US government orders.

However, the restriction on AI chips excludes automotive and consumer-grade chips, signaling that China’s AI and defense-related developments are the primary targets.

Growing tensions and US commitment to export control

The US has steadily intensified its stance against the use of American technology by companies that the government deems a security threat. By tightening export controls, the US aims to prevent China from leveraging AI and semiconductor advancements in ways that could counter US interests.

This latest directive follows broader efforts to restrict China’s technological capabilities, underscoring the US commitment to export control enforcement amidst ongoing geopolitical friction.

As the implications of the US directive continue to unfold, TSMC and other semiconductor producers may face a complex path ahead in balancing regulatory compliance with business needs in the Asia-Pacific region.