What just happened to TSMC?

Reports claim that the US Commerce Department has asked TSMC to stop selling chips with a die size of 7 nanometers (nm) or smaller to sanctioned Chinese companies. In this particular case, the company was Huawei — the same firm that was on the receiving end of the first set of US technology sanctions against China. Since 2019, Huawei has been on a trade embargo list following the company’s alleged US cyber espionage, as well as its apparently close ties to the Chinese government. With the sanctions still in place, Huawei has now been banned from using any chip design that is made to the latest cutting-edge standards.

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Why are these tokens targeted?

TSMC is gradually improving the technologies it uses to make chips for buyers around the world. The smallest, usually the most sophisticated, are used in cutting-edge applications, which today means artificial intelligence. Last month, a tech leak revealed that TSMC’s 7nm chips power the AI ​​processors in Huawei devices. To be sure, TSMC’s chip manufacturing technology powers most chip designs in the US and is used in Apple’s iPhones and Nvidia’s GPUs. Since today’s AI applications require dedicated chips for most applications, the US export sanction on TSMC directly targeted this area.

Why should Huawei or TSMC listen to the US?

While TSMC makes most of the chips, American tech giants such as Nvidia, Advanced Micro Devices, Intel, Qualcomm and others do the designing. Without the design, TSMC would have fewer chips to make, while Huawei would have to build its own chips from scratch. That would require billions of dollars in basic research and several years of it.

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Is there a national security concern?

The 2019 sanctions on Huawei sought to make the company comply with US requirements for technology localization, data security and national security. The current sanction on TSMC appears to be more commercial. Trade experts believe the US fears China’s ability to replicate its technologies and build them to scale to take over global markets at a fraction of the initial cost. The move will likely be in line with incoming President Donald trump cardit is expected to lean on nationalist policies.

Could this lead to a new cold trade war?

Until the 2019 sanctions, Huawei was one of the biggest technology brands in the world. Today, its impact is largely in China. To be sure, Chinese President Xi Jinping said Beijing and Washington “must get along” in his congratulatory message to Trump. With the Biden administration implementing sanctions, it remains uncertain whether this will lead to conflict between the two. Nationalism will also not go awry and could play a key role in defining US-China relations in the near term.