New Threats in the Tech Race Between China and the U.S.

We have seen these measures fall apart as third-party countries reroute technology shipments to help China evade sanctions, or through something as simple as Chinese spies smuggling some of the world's most advanced chips into the country to advance their military systems.

Even now, countries are offering the most advanced export-restricted chips as cloud services, giving China and Chinese companies access to their unique computing power. 

However, a new level of sanction failure may be emerging. The U.S. has recently accused Taiwan Semiconductor Manufacturing Co. (TSMC), the world's leading chip producer, of circumventing U.S. export controls and assisting Huawei, China's leading tech giant, in designing and manufacturing chips for artificial intelligence applications and smartphones. 

If these reported claims are true, China's advancements could have far-reaching consequences—not only for the global chip supply but also in driving forward China's technological progress in robotics, electric vehicles, AI, and propelling its decade-long military transition.

As Huawei and other Chinese firms equip themselves with essential chipmaking instruments, there is concern that they could flood the market with cheaper products to gain control over the supply chain of chip technologies that fall outside U.S. sanctions. By extension, they could secure a foothold in the broader supply chain—a proactive strategy to dodge future restrictions. 

This development represents a radical shift not only because Taiwan's flagship company, with its most advanced factories in Taiwan (a key reason for U.S. defense commitments against a Chinese invasion), is allegedly involved, but also because a massive multinational company deeply intertwined with U.S. efforts to advance its commercial and military industries could feel free to act in such a way. TSMC's actions are not the first instance of a large non-Chinese company violating sanctions and risking its business line, and they likely won't be the last. This past year, Seagate Technology, the computer storage company, was reportedly fined $300 million for shipping hard drives to Huawei in violation of export regulations. 

If TSMC is found to have violated export controls, it could face substantial penalties, including hefty fines and potential restrictions on accessing U.S. technology—a move with far-reaching implications for the global semiconductor industry.

Potential penalties against TSMC also cast doubt on its access to funding under the U.S. CHIPS Act. In April, TSMC was allocated $6.6 billion to support its investment of over $65 billion in constructing semiconductor fabs in Arizona—investments pivotal to the U.S. strategy of bolstering domestic chip production and reducing reliance on foreign suppliers. Given TSMC's crucial role in U.S. semiconductor ambitions, revoking its funding seems unlikely, and TSMC and other critical companies to the U.S. economy know that. This scenario raises serious concerns about what it means when indispensable foreign companies can evade repercussions simply because a country's development depends on them. 

The TSMC case highlights a troubling paradox: as nations become increasingly dependent on key foreign companies for technological advancement, these corporations gain the power to undermine national security measures in an effort to play both sides of the technological and geopolitical battle. Such actions will put a spotlight on how the incoming U.S. President will target not only China but also allies, adversaries, and companies doing business in the U.S. that are facilitating sanction evasion.