The Impact of U.S. Export Curbs on TSMC and the Broader Semiconductor Supply Chain

The U.S. government’s escalating export restrictions on semiconductor technology to China have placed TSMC at the center of a geopolitical and economic crossfire. Recent actions, including the revocation of TSMC’s “validated end user” (VEU) status for its Nanjing, China, facility, underscore Washington’s determination to curb China’s access to advanced chip manufacturing capabilities. This move, part of a broader strategy to stifle China’s semiconductor self-sufficiency, has far-reaching implications for TSMC, its suppliers, and the global supply chain.

Immediate Financial Impact on TSMC: A Minor Hit, but Operational Uncertainty Looms

According to a report by CNBC, the U.S. has mandated that shipments of U.S.-origin semiconductor equipment to TSMC’s Nanjing plant now require individual export licenses, effective December 31, 2025 [1]. While TSMC has emphasized its commitment to maintaining uninterrupted operations, analysts note that the Nanjing facility accounts for less than 3% of the company’s global production capacity and revenue [3]. This suggests that the direct financial impact on TSMC will be minimal. However, the revocation introduces operational uncertainties. U.S. suppliers must now navigate a cumbersome licensing process, potentially delaying shipments and disrupting production timelines [4]. For investors, this highlights a key risk: even minor disruptions in supply chain efficiency could ripple through TSMC’s operations, particularly as competitors like Intel and Samsung ramp up their own manufacturing capacities.

Strategic Implications: China’s Push for Self-Sufficiency and TSMC’s Vulnerability

The U.S. strategy is not merely about slowing China’s progress but also about deterring long-term self-sufficiency. A 2024 analysis by the Center for Strategic & International Studies (CSIS) notes that China has accelerated domestic innovation in semiconductors, with firms like Huawei and SMIC making strides in producing advanced chips [1]. While TSMC remains a dominant player in 3-7nm chip manufacturing, its strategic position is increasingly precarious. If China succeeds in replacing TSMC’s chips with domestically produced alternatives, the company could lose a significant portion of its market share. This scenario is not far-fetched: Huawei, for instance, now incorporates a growing proportion of China-sourced components in its smartphones [1].

Geopolitical and Supply Chain Shifts: Weaponized Interdependence and Supplier Diversification

The U.S. approach to export controls reflects what scholars Henry Farrell and Abraham Newman term “weaponized interdependence”—using economic leverage to coerce geopolitical outcomes [2]. By extending jurisdiction over foreign-produced chips via the Foreign Direct Product Rule (FDPR), the U.S. has effectively weaponized its technological dominance. This strategy, however, has created tensions with allies like Japan and the Netherlands, whose semiconductor equipment firms face a dilemma: comply with U.S. restrictions or risk losing access to the Chinese market [3]. ASML, for example, has maintained significant sales to China despite U.S. pressure, illustrating the limits of unilateral control [3].

For TSMC and its suppliers, the revocation of VEU status is a signal to diversify supply chains. As noted in a report by AINvest, semiconductor manufacturers are increasingly shifting production to Southeast Asia and other regions outside China to mitigate geopolitical risks [3]. This trend could reshape the industry’s geography, with countries like Vietnam and India emerging as key hubs. However, such shifts require substantial capital investment and time, creating short-term bottlenecks for companies reliant on rapid scaling.

Long-Term Outlook: Effectiveness of Controls and Policy Challenges

The long-term effectiveness of U.S. export controls remains uncertain. While the immediate goal of slowing China’s semiconductor advancements may be achieved, the broader strategy risks unintended consequences. For instance, U.S. semiconductor firms like Nvidia and AMD are already experiencing revenue losses due to restricted access to the Chinese market [3]. These companies are pivoting to localized production and R&D, but such adjustments come at a cost. Moreover, China’s push for self-sufficiency—backed by state subsidies and aggressive R&D investments—could eventually render U.S. controls obsolete.

Policymakers face a critical challenge: balancing strategic objectives with economic realities. As highlighted in a 2025 analysis by the Law and Economics Center, export controls must remain flexible to adapt to rapid technological changes in AI and semiconductors [4]. Rigid policies risk alienating allies and accelerating China’s technological independence, undermining the very goals they seek to achieve.

Conclusion: Navigating a Fractured Semiconductor Landscape

For investors, the U.S.-China semiconductor rivalry presents both risks and opportunities. TSMC’s resilience in the face of export curbs is commendable, but its long-term success hinges on its ability to adapt to a rapidly shifting geopolitical landscape. The revocation of VEU status is a microcosm of a larger trend: the weaponization of supply chains and the erosion of multilateral cooperation. As the industry grapples with these challenges, companies that prioritize diversification, innovation, and geopolitical agility will likely emerge as leaders.

Source:
[1] The Limits of Chip Export Controls in Meeting the China Challenge [https://www.csis.org/analysis/limits-chip-export-controls-meeting-china-challenge]
[2] Strategic implications of the US-China semiconductor rivalry [https://link.springer.com/article/10.1007/s44282-024-00081-5]
[3] U.S. Export Controls on Taiwanese Semiconductor AI Chips [https://www.ainvest.com/news/export-controls-taiwanese-semiconductor-ai-chips-implications-global-tech-supply-chains-semiconductor-stocks-2508/]
[4] US Export Controls on AI and Semiconductors [https://laweconcenter.org/resources/us-export-controls-on-ai-and-semiconductors/]