Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, has informed its Chinese clients that it will stop producing their most advanced AI chips, specifically those utilizing a 7-nanometer process or smaller. This policy change is set to take effect on Monday, marking a significant shift that will disrupt the supply chains of several Chinese tech giants. Companies such as Alibaba, Baidu, and emerging AI chip start-ups that have relied on TSMC’s state-of-the-art manufacturing capabilities are now faced with the challenge of finding alternative suppliers.
Sources familiar with the matter revealed that any future orders for these advanced chips would require approval from the U.S. government, given the tightening restrictions on technology transfers between the two countries. This move highlights the growing influence of Washington in shaping global semiconductor production and its impact on China’s technological ambitions.
U.S. Export Controls Drive TSMC’s Decision
This decision by TSMC is closely aligned with the broader efforts of the U.S. government to restrict China’s access to cutting-edge AI technology. Over the past few years, the U.S. has imposed increasingly stringent export controls, preventing companies like Nvidia from selling advanced processors to China. Additionally, regulations have been introduced to block any international chipmaker that uses U.S. technology from supplying China with high-performance chips.
TSMC’s move also comes amid an investigation by the U.S. Commerce Department into how sophisticated chips produced by TSMC for Chinese customers ended up in a Huawei AI device. The Chinese telecom giant, which is already under heavy U.S. sanctions, has become a focal point in the tech battle between the two countries. This scrutiny has prompted TSMC to strengthen its internal controls and comply with U.S. export laws to avoid further complications.
A source close to TSMC explained that the company’s actions are designed to preemptively address potential regulatory challenges. “We want to mitigate any risks before the new regulations are finalized,” the source said, signaling TSMC’s intention to remain compliant with U.S. policy.
U.S.-China Tensions Amplified by Trump’s Return
Compounding the situation is the looming return of former President Donald Trump, whose policies during his previous term were marked by strong rhetoric against Taiwan’s role in the global chip market. Trump had previously accused Taiwan of “stealing” U.S. technology and suggested that TSMC should relocate its operations to the U.S. in exchange for billions in subsidies. Although TSMC’s decision to halt AI chip production for Chinese firms is not directly tied to Trump’s political resurgence, some analysts view it as part of the company’s broader effort to align with U.S. interests and avoid becoming a target in the ongoing trade war.
“This isn’t about appeasing Trump, but it’s a clear indication that TSMC is positioning itself as a company that adheres to U.S. interests,” one insider remarked.
Major Chinese Firms Face AI Development Setbacks
This policy change could have serious repercussions for Chinese tech companies that rely on TSMC’s advanced manufacturing capabilities. Baidu, a key player in the AI space, has been developing its Kunlun series of AI chips using TSMC’s 7-nanometer process. The Kunlun II chip, designed for large model inference, has been crucial for Baidu’s AI business, which is a core part of its strategy to build a full-stack AI platform. The halt in production by TSMC means that Baidu and other companies like Horizon Robotics may now be forced to seek alternative production methods, which could lead to delays and higher costs.
Baidu founder Robin Li has emphasized the importance of these chips for enhancing the company’s AI capabilities, noting that the Kunlun chips will eventually be used for AI training as well. The new restrictions could stymie these plans and force Chinese firms to reconsider their technology development timelines.
