Chip Wars: TSMC’s Role in the Global Tech Race and Taiwan’s Geopolitical Gamble
Introduction to the Dispute
The discovery of 5nm chips manufactured by Taiwan Semiconductor Manufacturing Company (TSMC) in Huawei’s Ascend 910B AI processors has sparked significant geopolitical and semiconductor industry debates. As one of the world’s largest and most advanced semiconductor manufacturers, TSMC is known for strict compliance with U.S. export regulations. However, if TSMC has violated the prohibition on selling chips to China after 2020, it could threaten Taiwan’s economic and political stability.
Why Are High-Quality Chips So Crucial?
High-quality chips, such as 3nm and 5nm nodes, form the backbone of modern technology. They power advanced AI systems, software applications, and data processing, enabling innovations like autonomous vehicles, smart cities, and military technologies such as drones and missile systems. These chips are vital for countries seeking economic growth, technological leadership, and national security, positioning them as strategic assets in global power dynamics.
Why Does the U.S. Enforce Strict Chip Export Regulations to China?
The United States views Huawei as a significant national security threat, particularly for its potential use of cutting-edge AI technology in military applications. Chips like those in the Ascend 910B are essential for AI-driven systems, which can be adapted for drones and advanced weaponry. From a U.S. perspective, ensuring these technologies remain out of Chinese hands is critical to maintaining military and technological superiority. Any accidental or deliberate export of advanced chips could accelerate Huawei’s technological development, undermining U.S. strategic advantages.
Possible Explanations for the Chip Inflows
The presence of TSMC-manufactured 5nm chips in Huawei’s devices has raised two main theories:
1. Pre-Sanctions Stockpiles: Before the U.S. imposed export restrictions in September 2020, TSMC was a key supplier to Huawei. It’s possible that Huawei stockpiled these chips and is now utilising them in newer devices, aligning with TSMC’s claims of ceasing shipments post-restriction.
2. Indirect Procurement via Third Parties: Some suspect Huawei obtained TSMC chips through intermediaries like Sophgo, a Chinese semiconductor firm headquartered in Xiamen. Sophgo, linked to Micree Zhan of Bitmain—TSMC’s largest Chinese customer—may have acted as a proxy to funnel chips to Huawei
U.S. Regulatory Response
To address these concerns, the U.S. has tightened semiconductor export rules:
• Investigations: The Commerce Department is reportedly investigating potential violations of export laws, though details remain unclear.
• New Restrictions: An additional 166 pages of regulations now ban exports of advanced chips used for AI calculations and certain electronic devices, such as laptops and iPads, to China.
• Proposed Tariffs: Further tariffs on semiconductor-related exports have been suggested, complicating Taiwan’s economic position and raising operational costs for TSMC.
Will TSMC Lose Its Edge, and Can Taiwan Maintain Its Position?
Despite challenges, TSMC remains the global leader in high-quality 3nm and 5nm chip production, offering unmatched reliability and lower fault tolerance compared to competitors like Samsung. Switching production away from TSMC would be costly and logistically complex for clients.
While the U.S. heavily supports domestic manufacturers like Intel—allocating $8.5 billion from the CHIPS and Science Act—Intel remains technologically behind TSMC. Proposed tariffs on TSMC’s Arizona-based imports by Donald Trump could increase costs and reduce profits. In the long term, efforts to reduce reliance on TSMC and repatriate semiconductor manufacturing to the U.S. may impact Taiwan, but replicating TSMC’s expertise and supply chain would be a monumental challenge.
TSMC’s collaboration with NVIDIA further solidifies its position as a global leader. By producing NVIDIA’s latest GB200 chips and NVLink technology using its advanced 3nm and 4nm processes, TSMC drives innovation in AI and high-performance computing. Taiwan’s comprehensive tech ecosystem—including CCL, AI server assembly, and silicon photonics—ensures unmatched supply chain efficiency, making TSMC an indispensable player in the global semiconductor industry. Despite political pressures and new tariffs, TSMC and NVIDIA’s partnership continues to set new benchmarks in AI technology, reinforcing Taiwan’s critical role on the global stage.
Conclusion
In conclusion, while there are suspicions that TSMC may have breached export regulations, potentially impacting Taiwan’s geopolitical stability, its global influence and technological strength remain solid. TSMC’s leadership in advanced chip manufacturing continues to anchor Taiwan’s economy, minimizing the likelihood of significant economic fallout. However, on the political front, the situation is more nuanced. President Trump’s demands for Taiwan to increase its national defence contributions, tied to TSMC’s suspected regulatory breach, highlight the broader implications of the incident. While TSMC’s economic impact shields Taiwan from severe consequences, the political repercussions underscore the delicate balance Taiwan must maintain in navigating its geopolitical relationships.
Bibliography
https://www.nytimes.com/2024/10/29/business/tsmc-huawei-computer-chips.html
https://www.cna.com.tw/news/afe/202410270003.aspx
https://www.taiwannews.com.tw/news/5966699
Science and the Chip Act
https://csis.org/analysis/too-good-lose-americas-stake-intel
TSMC cooperation with Nvidia
Trump’s proposal to impose tariffs on TSMC’s chip exports
https://www.taiwannews.com.tw/news/5959681
Trump demands a national defence protection fee from Taiwan.