In a one-two punch aimed at China’s rising technological prowess, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading contract manufacturer of chips, said it would build a manufacturing plant in the US and the White House announced new rules to block Huawei’s access to such cutting edge components.
TSMC said Friday that it plans to spend $12 billion to build a next-generation manufacturing plant in Arizona with unspecified “support” from the US government and the state of Arizona. It said the plant would be capable of making chips using a new 5-nanometer process, with the first commercial batch being produced in 2024. A nanometer is a billionth of a meter, and manufacturing at this scale involves atomic-scale manipulation. TSMC said the plant would produce 20,000 semiconductor wafers per month, and create more than 1,600 high-tech jobs.
TSMC is a crucial source of microchips for leading US companies including Apple, Nvidia, and Qualcomm. TSMC-made chips are found in the latest iPhones and underpin recent advances in artificial intelligence. But the company also manufactures critical chips designed by Huawei’s chip subsidiary HiSilicon.
“It’s a good win for the Trump administration and Arizona,” says Neil Thomas, a senior research associate at Macro Polo, a think tank at the Paulson Institute, who co-authored a report on China’s chip industry. “TSMC is really at the cutting edge of semiconductor technology.”
The Arizona plant may be touted by Trump as a sign of his dealmaking prowess and ability to create jobs during the upcoming presidential campaign, akin to a manufacturing plant in Wisconsin announced by Foxconn in 2017. But that project has since been scaled back significantly.
Thomas notes that the new TSMC factory will be relatively small scale, and won’t be the most advanced by 2024. He suggests that TSMC may be wary about moving its best technology to the US. “They are still developing 3-nanometer technology,” he says. “And China isn’t the only country in which industrial espionage takes place.”
In a possibly coordinated move, the US Bureau of Industry said Friday that it would amend its foreign-produced direct product rule to restrict Huawei from using chips made with US technology. Most chipmakers, including TSMC, use US technology in manufacturing. So the change effectively cuts Huawei off from the advanced chips made by international companies, including TMSC—a major blow for the world’s number two smartphone maker and potential dynamite for US-China relations.
Cutting off Huawei’s access to the best chips, “is like China trying to kill Google and Apple at the same time,” says Paul Triolo, practice head at the Eurasia Group, a consultancy focused on global technology policy. He expects Beijing to retaliate by targeting US companies that manufacture or sell into China.
The Chinese government has previously said that further restrictions on Huawei would cause it to place US companies such as Apple, Cisco, and Qualcomm on an “unreliable entity list” and impose restrictions. A government source told Global Times, a publication tied to the Chinese government, that the government would proceed with this, and also suspend purchases of Boeing airplanes.
The Trump administration is keen to limit Huawei’s access to advanced technology over alleged intellectual property theft and perceived ties to the Chinese government. Some within the US intelligence community are especially concerned by Huawei’s leading position in supplying advanced 5G wireless technology worldwide. They believe this could effectively give Chinese intelligence a backdoor into many global communications.
The new restriction would “prevent U.S. technologies from enabling malign activities contrary to US national security and foreign policy interests,” Wilbur Ross, the Commerce Secretary, said in a statement.
The two developments highlight how critical advances in chipmaking are to great power competition and defense strategy. They also reflect a rapid deterioration of relations between Washington and Beijing that has escalated amid the fallout from the coronavirus.