High-tech sanctions for China The long arm of Washington and a letter to TMSC in Taiwan

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Apparently, just a letter is enough to curb companies in their trade relations. Recently, the US Department of Commerce had its eye on contract manufacturer TSMC and customers in China.

A letter from the US Department of Commerce is enough, and advanced chips no longer reach the People's Republic of China. TSMC in Taiwan received such a letter earlier this month. Certain chips based on 7-nanometer technology and below, suitable for AI applications, are not to be delivered to China anymore.

Regardless of Donald Trump's election victory, the current administration under President Joe Biden continues to escalate the "chip war" against Beijing. Republicans and Democrats in Washington agree that as many loopholes in the existing boycotts as possible should be closed.

A loophole in the semiconductor sanctions was discovered when Taiwan Semiconductor Manufacturing Company (TSMC) itself informed the US Department of Commerce a few weeks before the letter was sent that one of its chips was found in an AI accelerator by Huawei.

Huawei, which is seen as a rival in Washington due to its technological successes, has not been allowed to obtain such chips directly from the US for some time, since it was placed on the infamous "Entity List" in Washington. Apparently, however, Huawei was able to obtain certain 7-nm chips from TSMC through an order with the smaller Chinese chip designer Sophgo.

The process illustrates how far-reaching the arm of the US government still is. It is not even necessary to impose a formal boycott for a specific class of semiconductors; a simple letter is enough, and companies worldwide must comply with the wishes of politicians in Washington. These letters are called "is informed" letters in the semiconductor industry. TSMC announced shortly after receiving the letter that it would comply with the wishes of the USA. They stated they are a "law-abiding company" and would follow all "relevant rules and regulations, including the applicable export controls."

TSMC reportedly informed its own customers in the People's Republic shortly thereafter, on November 11, that it could no longer supply chips suitable for AI accelerators and GPU products of 7 nanometers and below, according to the Chinese specialist portal Ijiwei. However, it is believed that TSMC can still supply such chips to China, provided they are intended for use in the automotive industry and smartphones (unless the manufacturers are on Washington's blacklists).

With the handbrake on

Analysts and industry insiders in China believe that the increasing tightening of chip boycotts will have consequences that are only partially in the interest of the USA. From the perspective of China hawks in Washington, it is likely seen as positive that China's ambitions to become a high-tech nation and to quickly become increasingly powerful in the field of artificial intelligence are being short-term hindered by the boycotts.

Since Washington can also successfully prevent equipment manufacturers like ASML in the Netherlands from selling the most powerful lithography machines to China, among other things, the production of Chinese manufacturers of ASIC (Application Specific Integrated Circuits) and AI-capable GPUs is temporarily significantly hampered.

China's entire economic development is thus slowed down, as advanced AI chips are used for an increasing number of applications in various industries, including renewable energy, drug research, and the automation of the manufacturing industry.

On the other hand, and this consequence of the boycotts might be less appealing to the currently prevailing China hardliners in Washington, China's own chip designers and chip manufacturers are further strengthened with each additional boycott.

Sanctions stir motivations

In the long term, well-informed observers agree that each ban increases the determination of Chinese companies and government agencies to catch up technologically with Washington as quickly as possible and to become more self-sufficient in the semiconductor industry.

"I believe that it is good if TSMC stops manufacturing chips in the 7-nanometer range and below for Chinese customers," writes Xiang Ligang, a Chinese IT expert at the "Research and Development International" think tank of the Chinese Academy of Social Sciences, on his Weibo channel. The orders no longer possible at TSMC would now be "taken over by Chinese chip foundries," according to the expert.

In other words, Washington achieves short-term tactical successes and temporarily slows down Chinese development in certain areas, but strategically and in the long term undermines its own position in what is probably the most important technological race of the AI era. A day can be imagined when such “is informed” letters are no longer sent from Washington, but from Beijing. The more the US tightens the screws in the chip war, the closer this day comes. (sb)

*Henrik Bork, Founder and General Manager of Asia Waypoint, Beijing /PR China

25 billion US dollars

China invests more in chip equipment than Korea, Taiwan, and the USA combined