TSMC Uncertainty on AI Chips’ Presence in China Raises Concerns Over Export Control Effectiveness

The Taiwanese semiconductor leader, TSMC, has recently raised concerns about its ability to monitor the ultimate destinations of its chips, suggesting a potential increase in the presence of its products within the Chinese market.

Limited Oversight: TSMC Acknowledges Challenges in Chip Distribution

TSMC captured significant media attention following reports of its chips being utilized in Huawei’s AI technology. The company disclosed that these semiconductors were shipped prior to the implementation of new regulations. This incident underscored existing vulnerabilities within the semiconductor supply chain that entities, particularly in China, have exploited. According to a recent report by the Taipei Times, TSMC’s annual report indicates that the company has “limits” when it comes to knowing the final users of its semiconductor products. This raises the risk of repeating incidents similar to the TSMC-Huawei affair.

TSMC’s role in the semiconductor supply chain inherently limits its visibility and information available to it regarding the downstream use or user of final products that incorporate semiconductors manufactured by it.

– TSMC

The company operates primarily as a “chip service” provider, manufacturing products for fabless firms such as NVIDIA and Apple. Many of these products eventually find their way into markets like China, where they can be repurposed by various individuals or organizations. A notable example was TSMC’s involvement in supplying semiconductors for Huawei’s Ascend 910B chips, indicating that tracking the complete supply chain remains a significant challenge for TSMC. Given the vast size of the Chinese market, circumventing restrictions appears increasingly feasible, resulting in a rise in reported violations of export regulations.

Illustration of TSMC's semiconductor technology

In response to these challenges, the Trump administration has been actively working to restrict China’s access to advanced AI chips. This initiative includes requiring an “export license” and controlling the volume of chips sent to specific countries. Furthermore, the U. S.government is enhancing scrutiny on exports to nations such as Singapore, Malaysia, and India to prevent these chips from reaching China or organizations with ties to it. While these measures are likely to create an impact, preventing technology from reaching China and other adversarial nations remains a complex and ongoing task.

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