The U.S. makes it harder for TSMC, SK Hynix and Samsung to produce chips in China

The United States has taken significant steps to restrict exports of essential chipmaking technologies, affecting major players like Taiwan Semiconductor Manufacturing Co. (TSMC), SK Hynix, and Samsung. A waiver that previously allowed TSMC to send crucial manufacturing equipment to its Nanjing facility in China has been revoked, marking a continued effort by Washington to curtail China's advancements in semiconductor technology. This change, which will eliminate TSMC's validated end user (VEU) status, is set to take effect on December 31, as confirmed by TSMC to CNBC. Previously granted the exemption shortly after the U.S. Commerce Department imposed initial restrictions on American-origin chipmaking tools in 2022, TSMC now faces the requirement of obtaining U.S. export licenses for shipments to its Nanjing plant. In response to these developments, the company stated, "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." In addition to TSMC, South Korean giants SK Hynix and Samsung have also seen their VEU privileges revoked. Both companies operate memory chip facilities in China and will now navigate a more complex regulatory environment. The U.S. Department of Commerce's Bureau of Industry and Security has announced the closure of the VEU loophole, asserting that export licenses will only be granted to allow current operations in China, limiting any potential expansion or technological upgrades. Jeffrey Kessler, the under secretary of commerce for industry and security, emphasized that the Trump administration is focused on eliminating export control loopholes that could disadvantage U.S. companies. He described the latest decision as a significant move towards this goal. According to Brady Wang from Counterpoint Research, these policy changes are indicative of a broader strategy by Washington to tighten control over semiconductor exports to China, thereby reinforcing U.S. dominance in chip manufacturing. TSMC operates two facilities in China, located in Shanghai and Nanjing, with the latter being more technologically advanced. Although the Nanjing plant contributes less than 3% to TSMC's total revenue, analysts believe the financial implications for the company will be minimal. The recent revocation of VEU statuses might have come as a surprise, especially following the Trump administration's previous announcements aimed at easing controls on specific American AI chip exports to China. In a notable contradiction, last month, the U.S. allowed Nvidia and AMD to resume some exports of previously banned AI chips designed for the Chinese market. This rollback of restrictions was positioned as part of a strategy to maintain U.S. leadership in AI technology, including in China. However, the elimination of VEU exemptions indicates a more cautious approach regarding memory and chipmaking technologies. Ray Wang, a research director at Futurum Group, noted that these policies reflect the U.S. commitment to preventing China from enhancing its local semiconductor production capabilities and expertise. He suggested that an underlying goal might be to restrict companies from expanding their supply chain operations within China, particularly in strategic sectors like semiconductors, where U.S. interests are keenly protected. In contrast, the Trump administration has been actively encouraging the semiconductor supply chain to shift back to the U.S. through tariff threats. This year, TSMC, SK Hynix, and Samsung have all pledged new investments in their U.S. manufacturing initiatives. Following the VEU news, shares of SK Hynix and Samsung experienced declines, while TSMC's stock remained stable.