The reported transfer of TSMC's advanced chips to Huawei has triggered concerns over potential violations of US sanctions. Taiwan's Ministry of Economic Affairs has launched an investigation, urging manufacturers to mitigate risks and ensure strict compliance with international trade restrictions.
According to foreign reports, TSMC discovered on October 11, 2024, that its advanced chips had been rerouted to Huawei. TSMC immediately stopped shipments, initiated an internal investigation, and notified both US and Taiwanese authorities. However, the company reportedly withheld the identity of the customer from regulators.
Passed in August 2022, the CHIPS and Science Act pushed TSMC to set up operations in the US. Although China opposed the law, calling it "decoupling" and "economic politicization," Taiwanese chipmakers had to comply with US sanctions. Their activities in China are now limited to 16nm equipment upgrades and building 28nm fabs.
Taiwanese, Japanese, and South Korean companies have aligned with US policies, reducing investments and exports to China while expanding ties with the US. TSMC has committed to manufacturing 4nm, 3nm, and 2nm chips in the US. However, with its Arizona fab still not fully operational, an export control gap has surfaced—something the US is likely to address with strict measures.
The US national security strategy emphasizes that sanctions, export bans, and investment reviews targeting China aim to protect national security, not hinder China's growth. While the US allows China to develop semiconductor technologies independently, it prohibits the use of American technology in the process.
The US has identified Huawei, a major Chinese tech company, as having military ties and involvement in human rights abuses in Xinjiang. Despite US sanctions, Huawei has indirectly obtained advanced TSMC chips that utilize US technologies, including EDA tools and equipment—a development the US finds unacceptable.
The US continues to strengthen its Export Administration Regulations (EAR) and the Committee on Foreign Investment in the United States (CFIUS) to safeguard national security.
In response to BIS export restrictions on advanced chips, China filed a complaint with the WTO. Rather than easing the rules, BIS tightened them, expanding product categories and adding more companies to its Entity List.
As the world's largest economy, the US views China as its primary challenger. To safeguard national security, both the Treasury and Commerce Departments have imposed investment restrictions targeting China's advanced semiconductor, quantum computing, and AI sectors.
These technologies are critical, and losing leadership in them would endanger US security. The CHIPS Act bars subsidized companies like TSMC from expanding semiconductor production in China or other restricted countries for 10 years. It also mandates strict oversight of trade and investment activities involving advanced semiconductors with China.
US long-arm jurisdiction, which extends to Taiwan, has previously led to Taiwanese executives serving prison terms in the US. With reports of Huawei indirectly acquiring TSMC’s advanced semiconductors, TSMC is now under greater scrutiny. Taiwanese companies must carefully manage exports and investments to avoid supporting military developments in countries like China or Russia, as the consequences could be severe.
The US chip ban prohibits foreign manufacturers using US technology from selling products to China and bars US citizens from working in China's semiconductor industry. Whether or not TSMC was aware, violating these rules could result in complex, hard-to-resolve consequences.
TSMC must urgently cooperate with investigations by the US Department of Commerce, Taiwan's Ministry of Economic Affairs, and judicial authorities while implementing preventive measures. The fact that Huawei obtained TSMC's advanced chips is a serious issue, and relying on its role as a "contract manufacturer" may not be enough to avoid fallout.
Academic sources note Huawei's strong R&D capabilities, but advanced chips are essential to many technologies. US sanctions blocking chip imports have limited the effectiveness of Huawei's products. Until SMIC achieves major process breakthroughs, exploiting sanction loopholes will likely remain a key strategy.
The trade of advanced chips has shifted from commerce to geopolitics, with high-end semiconductors now considered essential strategic assets. As the US-China tech war intensifies, TSMC must carefully manage the flow of these "strategic assets" to safeguard its position and reduce risks.
