Mint Primer | When the chips are down: A US-China trade war?

On Monday, Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest chipmaker, was reportedly stopped from shipping advanced ‘AI’ chips to China’s biggest tech conglomerate, Huawei. The move threatens to raise trade tensions. How can this affect the world?

What just happened with regard to TSMC?

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

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Why are these chips being targeted?

TSMC incrementally improves the technologies that it uses to make chips for buyers all around the world. The smallest, typically the most sophisticated, are used in cutting-edge applications—which today means artificial intelligence. Last month, a tech strip-down found TSMC’s 7nm chips powering AI processors on Huawei devices. To be sure, TSMC’s chipmaking tech powers most of the US’s chip designs, and is used in Apple’s iPhones and Nvidia’s GPUs. With AI applications today needing dedicated chips for most applications, the US export sanction on TSMC squarely targeted this field.

Why should Huawei or TSMC listen to the US?

While TSMC makes most chips, it is US tech giants such as Nvidia, Advanced Micro Devices, Intel, Qualcomm and others that do the designing. Without designs, TSMC would have fewer chips to make—while Huawei will need to build its own chips from scratch. That would take billions of dollars in foundational research and several years of it.

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Is there a concern on national security?

The 2019 sanctions on Huawei sought to make the company comply with US demands of tech localization, data security and national security. The current sanction on TSMC appears to be more commercial. Trade experts believe the US is wary of China’s ability to replicate its technologies and building them at scale to take over global markets at a fraction of the original cost. The move will likely be in line with incoming president Donald Trump’s expected leaning upon nationalist policies.

Can this lead to a new cold trade war?

Until 2019’s sanctions, Huawei was one of the world’s biggest tech brands. Today, its impact is largely within China. To be sure, Chinese President Xi Jinping said that Beijing and Washington “must get along” in his congratulatory message to Trump. With the sanctions being implemented by the Biden administration, it remains uncertain if this will lead to conflict between the two. Trump’s hardline nationalism will also not go amiss, and could play a key role in defining US-China relations in the near term.