US Imposes Export Restrictions on TSMC's 7-nanometer AI Chips

The US Department of Commerce has recently required Taiwan Semiconductor Manufacturing Company (TSMC) to implement export restrictions on 7-nanometer artificial intelligence (AI) chips. This move is part of the US's ongoing efforts to limit China's access to advanced semiconductor technology, which has significant military applications. The Department of Commerce's Bureau of Industry and Security (BIS) announced a package of rules designed to further impair the People's Republic of China's (PRC) capability to produce advanced-node semiconductors.



The new controls include:

1. New restrictions on 24 types of semiconductor manufacturing equipment and 3 types of software tools for developing or producing semiconductors.
2. New controls on high-bandwidth memory (HBM).
3. New red flag guidance to address compliance and diversion concerns.
4. Addition of 140 Entity List additions and 14 modifications, spanning PRC tool manufacturers, semiconductor fabs, and investment companies involved in advancing the PRC government's military modernization.
5. Several critical regulatory changes to enhance the effectiveness of previous controls.

The US Department of Commerce stated that these actions are part of a proactive approach to impede the PRC's ability to procure and produce the technologies necessary for its military modernization. The US has been strategically addressing China's military modernization through export controls, with the Biden-Harris Administration being the toughest in this regard.

The export restrictions on TSMC's 7-nanometer AI chips will likely have significant implications for the global AI chip market. TSMC is the world's largest contract chipmaker, and its compliance with US export restrictions may strain its relationship with Chinese clients. This could lead to uncertainty for AI-driven chip companies in China, particularly those focused on autonomous driving and cloud computing. Chinese firms may shift their orders to alternative suppliers like SMIC and Samsung, potentially leading to a loss of market share for TSMC in the AI chip sector.

The global AI chip market is expected to grow significantly in the coming years, with a projected market size of $128.9 billion by 2025, growing at a CAGR of 40.1% from 2020 to 2025. However, TSMC's reduced presence in the Chinese market due to the restriction could lead to a smaller share of this growing market for the company. This could have broader implications for the country's AI industry and its ability to maintain its current position at the forefront of the world's AI development.

In conclusion, the US Department of Commerce's requirement for TSMC to implement export restrictions on 7-nanometer AI chips will significantly influence the competitive landscape among global chipmakers, potentially benefiting Samsung and SMIC in the short term. However, the long-term impact on the competitive landscape remains uncertain, as TSMC's advanced technology and dominant market position could help it maintain its leadership in the global semiconductor industry. The export restrictions could also have broader implications for the global AI chip market and China's AI industry.