Chips and challenges: TSMC's export restrictions and its fallout for mainland China's auto industry

TSMC's chip export ban underscores the intensifying geopolitical battle over semiconductor technology. While this move aims to curb mainland China's access to advanced nodes critical for national security purposes, it could also incentivize mainland Chinese firms to focus on maturing and scaling older technologies, which remain highly relevant to industries, such as automotive. Meanwhile, US initiatives such as the CHIPS Act focus on strengthening domestic innovation and supply chain resilience. The unfolding landscape could redefine global semiconductor leadership with ripple effects felt across industries worldwide.

The recent directive from the US Commerce Department to Taiwan Semiconductor Manufacturing Co. (TSMC) requires the company to halt shipments of advanced chips used for AI applications to mainland Chinese companies. Effective Nov. 11, 2024, this order targets chips of 7 nanometers (nm) and below, which are essential for supporting AI workloads and graphics processing units (GPUs). TSMC's decision to restrict the use of 7 nm or below processes for AI companies reflects its strategic positioning within the semiconductor industry. This move may present challenges for mainland Chinese firms, such as SMIC. Despite significant technological advancements, these companies are still developing their capabilities in advanced chip production due to various factors, including a shortage of skilled engineers.