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Flags of Taiwan and the US.
The US tells TSMC to cut off China
The US Department of Commerce ordered Taiwan Semiconductor Manufacturing Company to stop shipping advanced chips to Chinese customers starting yesterday, Monday, Nov. 11. The government sent a letter to TSMC specifying that this restriction applies to all chips that are seven nanometers or smaller, which can be used to power artificial intelligence models.
Just weeks ago, TSMC notified the Commerce Department that it found that chips it produced were used inside of a Huawei processor. Huawei is a Chinese tech giant subject to stringent US trade restrictions. In response, TSMC cut off Sophgo, a Chinese chip designer that used its fabrication facilities to make the Huawei chip in question.
In Oct. 2022, the Biden administration announced stringent export controls against chips flowing into China. But there wasn’t an all-out ban, explains Xiaomeng Lu, director of Eurasia Group’s geo-technology practice. “US suppliers could seek a sales license to sell to Chinese buyers and sometimes they do get approved — this is the nature of [the] export control regime,” she said. “They are not blank bans.”
But now, TSMC, a strategic corporate partner of the US government, will be barred from all Chinese sales under the new export control rules. “It is possible that TSMC has sought these licenses and offered green lights [to bypass the rules],” Lu said. “Conversely, they have failed to comply with US rules and were caught doing so.”
US takes a close look at TSMC and Huawei
The US Commerce Department is looking into whether Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, is — knowingly or unknowingly — producing computer chips for the Chinese technology giant Huawei.
TSMC is one of the most strategically important companies to the United States because of its overwhelming market share in the chip fabrication process. Chip designers such as NVIDIA, AMD, and Apple send their chips to be made at TSMC facilities. But it’s also located, as its name suggests, in Taiwan — and that makes its relationship with China, which doesn’t acknowledge Taiwan’s independence, geopolitically significant.
The US investigation, recently reported by The Information, is eyeing whether TSMC is manufacturing Huawei chips — either those used to power smartphones or AI applications. Under the Biden administration, the US has strengthened export controls, preventing US companies — or those reliant on US parts — from selling chips and semiconductor manufacturing equipment to Chinese companies. While Huawei has the most advanced AI chips in China, they lag significantly behind US chipmakers Nvidia, AMD, and Intel because they don’t have unfettered access to important middlemen like TSMC and the Dutch photolithography company ASML — that is, unless the US finds a major breach or loophole.
Commerce Secretary Gina Raimondo recently said she’s under “no illusion” that her department is completely sealing off China – so she knows that US-made chips and equipment are making their way to China through underground markets and intermediaries. The New York Times reported that hundreds of thousands of banned chips have been sold in the Shenzhen electronics markets alone.
Xiaomeng Lu, director of Eurasia Group’s geo-technology practice, said that the TSMC investigation appears to look at whether the company is following export control rules. “This question is slightly different than whether Huawei got restricted chips from TSMC through illegal channels,” she said. “If Huawei is doing that, which is a more geopolitically significant development than potential TSMC misconduct – and TSMC proves they are following all US rules and regulations, Huawei should be the one receiving severe penalties. And I am almost certain they will.”
A violation by TSMC would be legally risky – and a massive business mistake given the company’s closeness with the US and other Western nations it relies on. But the experts who spoke with GZERO are skeptical this is the case.
Hanna Dohmen, a research analyst at Georgetown University's Center for Security and Emerging Technology, said TSMC would be foolish to knowingly allow sales to Huawei — even through an intermediary.
“Given TSMC’s position in the US-China technology competition, it would be surprising if TSMC is knowingly providing its services and exporting TSMC-fabricated chips to Huawei or any third-party affiliates,” she said. “Such a brazen violation of US export controls would put it squarely at risk of significant legal, political, and reputational consequences.”
TSMC is also set to receive $6.6 billion from the US government, she notes, to build advanced fabrication facilities in Phoenix, Arizona. “For such a significant amount of taxpayer money, it will be important for TSMC to demonstrate that it is doing everything it can to comply with US regulations to avoid political and reputational fallout with policymakers on the Hill, the administration, and the public.”
The US has not yet alleged any wrongdoing and has merely opened an inquiry, and it could be months before the probe is completed.
If wrongdoing is proven, TSMC would be on the hook for major financial penalties, just as Seagate was last year when it was fined $300 million by the Commerce Department for illicit sales to Huawei. Such a revelation would also call into question the balance of power between the US and China, their race for AI, and Taiwan’s role in the middle.The first upgraded Apple store is opening in Shanghai, China, on June 25, 2024.
Why Apple’s having a rotten time in China
Apple isn’t synonymous with artificial intelligence — at least not yet. In the West, Apple has lain in wait while OpenAI, Anthropic, Microsoft, and Meta jump forward with powerful generative AI models. That’s about to change when Apple adds its recently announced Apple Intelligence system to iPhones, but the company is also struggling to make a dent in another global market: China.
Apple is losing market share in the Chinese smartphone market — where it formerly held a dominant position — because it hasn’t yet incorporated artificial intelligence into its phones. Chinese brands, such as Vivo and Honor, which took the top two spots, have AI built into their systems.
One challenge may be that companies need government approval before introducing AI — and Apple is already out of favor in the eyes of Beijing, which has largely banned its devices from government use. “As of March, Beijing’s internet watchdog, the Cyberspace Administration of China, had approved 117 generative AI products, none of which is foreign-developed,” the Wall Street Journal notes.
We’re watching how Apple tries to get the Middle Kingdom to take another bite.
The logo of Huawei's global flagship store is being displayed on the pedestrian street of Nanjing Road in the Huangpu district of Shanghai, China, on May 8, 2024. The Oriental Pearl Tower in Lujiazui is visible in the background to the left.
US revokes permission to sell chips to Huawei
The US Commerce Department revoked licenses for US chipmakers to sell to Chinese tech giant Huawei on Tuesday, in the latest pressure tactics on Beijing’s tech sector.
US firms like Intel and Qualcomm had been selling their processors to Huawei through special exemptions to sanctions meant to rein in China’s semiconductor industry. Until this week, they sold chips to power phones and computers for China’s lucrative consumer market — which was hardly a threat to US national security, says Eurasia Group Geotechnology Director Alexis Serfaty.
“It's pretty obvious that what the US wants to do is stifle Chinese technological advancement and one way of doing that is to hit Huawei directly,” he says, even at the cost of some pain to US companies.
China’s commerce ministry called it a “clear case” of economic coercion, but Eurasia Group’s Xiaomeng Lu called Beijing’s reaction “more bark than bite,” because it lacks clear ways to clap back.
Chinese President Xi Jinping, wrapping up a European trip, isn’t likely to make a big issue out of it with US President Joe Biden as the two pursue stability in US-China relations.
“They've been able to compartmentalize it whereby they can have a floor in the deterioration of the relationship and still tolerate the US doing pretty unprecedented things from a technology standpoint,” says Serfaty.
US-China tech tensions: the impact on the global digital landscape
As the digital world continues to grow and evolve, there still exists a digital divide between the US and China. Alexis Serfaty, director of geotechnology at Eurasia Group, in a GZERO livestream presented by Visa, says that has long as US-China relations continue to be involved in a “tech cold war,” other countries, especially in developed regions, may find themselves compelled to take sides when it comes to adopting new technology infrastructure and standards. Global data divergencies and disparities in regulation of data would eventually fall on to the consumer, as their own experiences and standards would diverge, says Serfaty.
Serfaty goes on to say this alignment with either the US or China could also impact tech-related supply chains and global partnerships. An example lies in Europe, where despite some nations still utilizing Huawei equipment in their 5G networks, the European Union and several member states are progressively banning Chinese-made equipment. In parallel, the United States is poised not only to enhance its lead over China in advanced technologies but also to maintain that lead indefinitely.
The geopolitical tensions between the US and China in shaping the future of digitization is posing challenges and opportunities for nations striving to navigate this evolving digital landscape, highlights Serfaty.
To hear more about the challenges and opportunities that nation-states face when it comes to digitization, and how it could shape a more inclusive and resilient future, watch the full livestream here:
What Ukraine's digital revolution teaches the world
A CPU semiconductor chip is displayed among flags of China and the US.
US-China tech “Cold War” is on
The best fallacies stem from kernels of truth. In the case of what is being framed by some as the US-China “Cold War,” that kernel lies in the tech sector, where competition between the world’s two largest economies is fierce. The Biden administration has been increasingly clear that it is intent on slowing down China’s technological rise, and has centered its efforts toward decoupling — a low-grade form of economic warfare.
The rivalry has been bubbling for years, as US national security officials worried that Chinese tech firms were stealing intellectual property from American companies and data from US citizens. It spans from crucial sectors like software and semiconductors, where the US is fighting to maintain its competitive advantage, to industries like electric vehicles, smartphones, and drones, where China has the edge (maybe AI too).
China’s technological rise can be attributed to its skilled and lower-cost workforce and its ability to subsidize domestic companies and push out Western rivals. As a result, Chinese companies lead the world in smartphone sales, especially in Asia and Africa, and Huawei dominates the (non-Western) telecommunications sector.
Alarmed by the mounting competition, the Biden administration’s decoupling strategy has taken the form of tariffs, export controls, investment blocks, and visa limits. It has also put pressure on its allies to ban Huawei from the 5G networks. Washington has dramatically expanded its control over tech flowing to Beijing and imposed aggressive sanctions on China’s chip and semiconductor industry.
Yet, the costs of decoupling may outweigh the gains. It won’t cripple China’s tech sector, but merely “slows down China at the cost of hurting US companies at the same time,” says Eurasia Group expert Xiaomeng Lu.
One way the US-China tech race could acquire Cold War vibes is by creating a bipolar world where Chinese technology reigns supreme in Asian and African nations but is blocked from the West. The US weighing a TikTok ban is a step in this direction, and US tech giants like Twitter, Google, and Facebook are already unavailable in China.
What’s more, social media is likely only the first step of the US-China decoupling. In 2020, the State Department launched a plan to block out any connection to China, including telecommunications networks, mobile apps, cloud services, and even the undersea cables that carry web data between nations.
Rishi Sunak vs UK economic crisis
Ian Bremmer shares his insights on global politics this week on World In 60 Seconds.
Can new Prime Minister Rishi Sunak fix the United Kingdom?
No. Fix is aggressive. Right? But can he stabilize it? I think he can move in that direction, certainly not in the next few months because you know the economic crisis is real. The hole is deep. Energy prices are massive, and the UK's not prepared for it. But the orientation of UK fiscal policy is going to be very much more in line with what the markets want. They have been punishing the UK and Liz Truss dramatically from all of these. The giveaways that were being planned, many to the rich, and none of which were going to be funded. A more constrained fiscal environment is what Rishi is going to be putting in place. Of course, the UK population may not be happy about that at all. What he can do for his own future and the Conservative Party is a much bigger hole, frankly, than where the UK is going.
With the DOJ charging Chinese operatives with espionage, what signal is the US sending Xi Jinping?
The signal is that on the technology front, the Americans are going to play hardball, whether it's Huawei or 5G or semiconductors or robotics. Any area that is considered to be contiguous with or overlapping national security, the Americans are going to promote national champions in the US and among allies, and are going to decouple aggressively from the Chinese. We saw some of this under Donald Trump. We're seeing more of it under Joe Biden. On balance, you'd have to say that the Biden foreign policy towards China is a little bit more hawkish than the Trump foreign policy towards China. A lot of people wouldn't have expected that. It is true that Biden has tried to take some of the Trump era tariffs off because they're inflationary, but he's actually failed in getting that done because politically it's seen as inexpedient with the midterms looking tight.
Will the presidential election in Brazil be contested no matter the result?
Well, I wouldn't say no matter the result, because of course Bolsonaro could win and Lula will accept the outcome if Bolsonaro wins the election. He's accepted three losses before. He can accept a fourth. The question is, will Bolsonaro accept if Lula wins? And of course, that's more likely. Lula's ahead by three to four points right now. The answer is probably not, but I don't think it matters very much. You could easily have violence, of course, in some regional capitals. You could have the truckers, you could have bikers and others come out into the streets, and I suspect Bolsonaro will call on some of that. The fact that the judiciary in Brazil is not particularly independent, putting their finger on the scale in favor of Lula doesn't help in this regard. But ultimately, the military, Congress, I mean all the major institutions in Brazil have no interest in moving down an undoing and unwinding of their democracy. So if Bolsonaro goes in that direction, he will have his base, but basically nobody else, and we'll move on to a transition, a Democratic transition in Brazil. Always nice to see those.
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What We're Watching: Australia-China tension rising
For Beijing, there is thunder Down Under. Tensions between Australia and China just keep rising. After China responded to Aussie requests for a COVID investigation by imposing devastating tariffs and unofficial bans on Australian exports in 2020, Oz is pushing back hard now. Canberra on Friday accused China of “economic coercion,” while cybersecurity officials publicly confirmed malicious attacks against Australia by Chinese spy services working with Chinese telecom giant Huawei. The Aussies also say Chinese intelligence vessels are snooping around in Australia’s Exclusive Economic Zone. These accompany several clearly pro-American moves this year: the Aussies have signed on to AUKUS, an exclusive military club with Washington and London that gives them access to unprecedented weapons tech, are allowing the buildup of US military infrastructure (read, bases) on its soil, and joined America in a diplomatic boycott of the 2022 Beijing Winter Olympics. But the Australians are taking the tensions directly to China’s neighborhood, too. Canberra just signed a $770 million weapons deal with South Korea, including tech to build Howitzers — really, really big artillery guns. And even though the spat between the two continues, there is evidence that Australia, though heavily dependent on trade with China, is successfully pushing for diversity in trade partnerships.