A 300mm wafer on display at the booth of Taiwan Semiconductor Manufacturing Company during the 2023 World Semiconductor Conference at Nanjing International Expo Center on July 19, 2023, in Nanjing, China.
Vcg | Visual China Group | Getty Images
In a move signaling a renewed hardening stance on technology exports to China, the U.S. government has revoked a key export waiver granted to Taiwan Semiconductor Manufacturing Co. (TSMC), restricting its ability to readily procure advanced chipmaking equipment for its Nanjing, China, facility. The decision, confirmed by TSMC, will terminate the “Validated End User” (VEU) status effective December 31st, injecting uncertainty into the operational dynamics of TSMC’s China-based manufacturing.
The VEU status, awarded shortly after the Commerce Department’s initial imposition of restrictions on U.S.-origin chipmaking tools in 2022, allowed TSMC a streamlined process for acquiring essential equipment. Under the revised policy, shipments of chip manufacturing tools containing American-origin components directed to TSMC’s Nanjing plant will now necessitate individual U.S. export licenses, adding bureaucratic hurdles and potential delays.
“While we are evaluating the situation and taking appropriate measures, including communicating with the US government, we remain fully committed to ensuring the uninterrupted operation of TSMC Nanjing,” the company stated, highlighting their adaptive strategy.
SK Hynix and Samsung, two South Korean memory chip giants with significant manufacturing footprints in China, also saw their VEU privileges rescinded, according to a filing in the Federal Register. This coordinated action underscores a broader policy shift aimed at tightening control over critical technology flows into China’s semiconductor sector.
The Department of Commerce’s Bureau of Industry and Security (BIS) issued a statement characterizing the move as closing a “Biden-era loophole” applicable to all foreign-owned semiconductor fabrication facilities (fabs) operating within China. BIS intends to process export license applications to enable these facilities to continue existing operations, but will strictly scrutinize, and potentially deny, applications for capacity expansion or technology upgrades within China.
Jeffrey Kessler, Under Secretary of Commerce for Industry and Security, emphasized the motivation behind the decision,stating that the Trump administration is “committed to closing export control loopholes — particularly those that put U.S. companies at a competitive disadvantage. Today’s decision is an important step towards fulfilling this commitment.”
Brady Wang, Associate Director at Counterpoint Research, views the policy shift as “reflecting Washington’s broader push to tighten control over semiconductor equipment and technology exports to China, strengthening U.S. leverage over chip production in China.” This tightening grip extends beyond mere trade restrictions, impacting the strategic autonomy of Chinese semiconductor manufacturing.
TSMC’s footprint in China encompasses two manufacturing sites, located in Shanghai and Nanjing, with the Nanjing facility representing its more advanced presence. The company relies on equipment from key U.S. suppliers, including Applied Materials and KLA Corp, to maintain its fabrication capabilities.
Despite these challenges, the immediate financial impact on TSMC is projected to be limited. Counterpoint Research estimates that TSMC’s Nanjing fab currently contributes less than 3% of the company’s total revenue and a minor share of its overall global capacity.
Renewed Crackdown?
The revocation of VEU status might seem at odds with recent moves to relax export controls on advanced AI chips. Last month, the U.S. signaled that Nvidia and AMD would be permitted to resume exports of certain AI chips specifically designed for the Chinese market. This easing of restrictions was framed as a strategy to ensure U.S. companies maintain their dominance in the global AI technology landscape, including in China.
Similarly, the administration previously struck down the Biden-era AI diffusion rule, which would have broadened export controls on advanced AI chips. These apparent contradictions highlight the nuanced and often conflicting priorities of U.S. technology export policy.
The removal of VEU exemptions demonstrates that applying the same logic to legacy memory and chipmaking technologies remains unlikely. This implies a sharper distinction in how the U.S. assesses the strategic risks and benefits associated with different segments of the semiconductor value chain.
Ray Wang, research director for semiconductors, supply chain, and emerging technology at Futurum Group, believes this signifies Washington’s steadfast commitment to curbing China’s domestic chip production capabilities and limiting its ability to cultivate local expertise within the sector.
“Zooming out, another underlying goal may be to constrain companies’ ability to expand their supply chain footprint in China—particularly in strategic sectors such as semiconductors, which the administration is keen to prevent,” he added, suggesting a broader effort to reshape global supply chains.
Simultaneously, the Trump administration has actively sought to reshore and “friend-shore” semiconductor manufacturing, employing strategic incentives, including tariff threats, to attract greater investment in domestic production.
These efforts appear to have borne fruit. Throughout the year, TSMC, SK Hynix, and Samsung have announced significant investments in expanding their U.S.-based manufacturing facilities, solidifying the growing prominence of the U.S. as a semiconductor manufacturing hub.
In the immediate aftermath of the VEU news, shares of SK Hynix and Samsung experienced a dip. However, TSMC shares remained relatively stable, suggesting a degree of market anticipation or a perception that the impact would be manageable.
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