Assessing the Short-Term Operational Risk and Long-Term Resilience of TSMC Amid U.S. Export Controls

The U.S. government’s decision to revoke TSMC’s “validated end user” (VEU) status for its Nanjing, China, facility by December 31, 2025, has sparked intense debate about the semiconductor giant’s operational vulnerabilities and long-term adaptability. While the immediate impact on TSMC’s financials appears limited—given the Nanjing plant accounts for just 3% of its global production capacity [1]—the broader implications for supply chain stability, client relationships, and U.S.-China tech competition demand closer scrutiny.

Short-Term Operational Risks: Delays, Uncertainty, and Market Shifts

The revocation of the VEU status means U.S. suppliers of equipment and materials to TSMC’s Nanjing plant must now secure individual export licenses for each shipment [2]. This bureaucratic hurdle introduces operational delays, particularly for spare parts and maintenance tools critical to sustaining production. According to a Bloomberg report, the U.S. government has signaled it will not approve licenses for capacity expansions or technology upgrades at Chinese facilities [3], effectively freezing the plant’s growth trajectory.

While TSMC has stated it is “evaluating contingency plans” to ensure uninterrupted operations [4], the lack of a clear timeline for license approvals creates uncertainty. For instance, delays in acquiring lithography systems or chemical precursors could disrupt the plant’s output of 16nm and 28nm chips, which cater to automotive, industrial, and low-end consumer markets [5]. This risk is compounded by the fact that Chinese domestic suppliers currently lack the technical capability to replace U.S. equipment for these nodes [6].

The move also raises the possibility of client reallocation. Chinese foundries like SMIC and Hua Hong may benefit from redirected demand for mature-node chips, though their ability to match TSMC’s quality and yield rates remains unproven [7]. A Reuters analysis notes that such shifts could erode TSMC’s market share in China’s $30 billion foundry sector, albeit modestly given the Nanjing plant’s limited scale [8].

Long-Term Resilience: Diversification, R&D, and Geopolitical Strategy

TSMC’s long-term resilience hinges on its ability to mitigate U.S. export controls through strategic diversification and innovation. The company has already committed $165 billion to U.S. manufacturing expansions, including advanced fabrication plants in Arizona, a move accelerated by Trump-era tariffs and geopolitical pressures [9]. These investments not only align with U.S. goals to reduce reliance on Chinese supply chains but also position TSMC to capture high-margin AI and military chip markets [10].

Financially, TSMC’s robust 2024 performance—marked by a 39.92% surge in net income and a 56.12% gross profit margin—provides ample resources for R&D and capital expenditures [11]. The company’s 7.06% revenue allocation to R&D in 2024 underscores its focus on next-generation 3nm and beyond-node technologies, which are less vulnerable to U.S. export restrictions [12].

Moreover, TSMC’s global footprint expansion into Europe and the UAE reflects a deliberate strategy to decentralize production risks. A CNBC report highlights that these moves are part of a broader industry trend to avoid over-reliance on any single region, particularly amid escalating U.S.-China tensions [13].

Strategic Implications for Investors

For investors, the key question is whether TSMC can balance short-term disruptions with long-term gains. The immediate operational risks at Nanjing are manageable given the plant’s small contribution to overall output, but the cumulative effect of U.S. export controls on TSMC’s access to Chinese markets could evolve. However, the company’s financial strength, R&D focus, and geopolitical alignment with the U.S. suggest it is well-positioned to navigate these challenges.

A critical wildcard is the pace of China’s technological self-reliance. If domestic foundries like SMIC close the gap in advanced-node capabilities, TSMC’s competitive edge could face pressure. Conversely, if U.S. export controls harden further, TSMC’s U.S. and European facilities may become even more pivotal to its revenue growth.

Source:

[1] US Tightens Chip Controls, Revokes TSMC's China Export ...,
https://www.techrepublic.com/article/news-tsmc-export-hurdles-us-pulls-china-waiver/
[2] US Pulls TSMC’s Waiver for China Shipments of Chip Supplies [https://www.bloomberg.com/news/articles/2025-09-02/us-pulls-tsmc-s-waiver-for-china-shipments-of-chip-supplies]
[3] Trump Axing 'Biden-Era' Waivers in China Rattles Chipmakers [https://finance.yahoo.com/news/trump-axing-biden-era-waivers-104139270.html]
[4] U.S. gov't revokes TSMC's authorization to ship tools to its Fab 16 in Nanjing [https://www.tomshardware.com/tech-industry/semiconductors/u-s-govt-revokes-tsmcs-authorization-to-ship-tools-to-its-fabs-in-china-special-export-license-to-be-pulled-by-end-of-2025]
[5] TSMC, like South Korean rivals, has US fast-track export ... [https://www.aol.com/news/us-revokes-tsmcs-fast-track-135723719.html]
[6] TSMC's role in the global AI and geopolitical order [https://www.ai-supremacy.com/p/tsmc-role-in-the-global-ai-and-geopolitical-future]
[7] TSMC Nanjing Fab Faces U.S. Ban: Will Chinese ..., [https://techovedas.com/tsmc-nanjing-fab-faces-u-s-ban-will-chinese-foundries-cash-in/]
[8] US limits TSMC chipmaking tool shipments to China [https://today.rtl.lu/news/business-and-tech/a/2333289.html]
[9] U.S.-China Trade Tensions and Taiwan's Semiconductor Nexus [https://www.francescatabor.com/articles/2025/5/4/us-china-trade-tensions-and-taiwans-semiconductor-nexus]
[10] Taiwan Semiconductor (NYSE: TSM) Price Prediction and ... [https://247wallst.com/forecasts/2025/08/25/taiwan-semiconductor-tsm-price-prediction-and-forecast/]
[11] TSMC Financial Update 2025: Growth, Dividends & Market [https://monexa.ai/blog/tsmc-latest-financial-and-strategic-update-strong--TSM-2025-07-08]
[12] Semiconductor Industry Growth for 2025: Key Stats You ... [https://patentpc.com/blog/semiconductor-industry-growth-for-2025-key-stats-you-need-to-know]
[13] U.S. makes it harder for TSMC, SK Hynix, Samsung to make chips in China [https://www.cnbc.com/2025/09/03/us-makes-it-harder-for-tsmc-sk-hynix-samsung-to-make-chips-in-china.html]