China has announced new rare-earth export controls that could require foreign entities like TSMC to obtain licenses, creating uncertainty for the U.S. chip industry by potentially barring chip sales to American companies.
As a development in the U.S.–China trade dispute, Beijing is implementing measures adding scrutiny to semiconductor firms. China, accounting for 90 percent of the world’s rare earth production, is shifting its policy by introducing licensing for end-products made with its materials. This moves from controlling raw materials to governing the distribution of finished goods, targeting foreign entities reliant on these resources for their manufacturing processes.
The new regulations present challenges for top semiconductor producers. According to a New York Times report, China’s curbs on rare earth exports might force companies like Taiwan Semiconductor Manufacturing Company (TSMC), SK hynix, and Samsung to obtain export licenses to sell chips globally. TSMC is the primary manufacturer of the world’s advanced logic chips, while the South Korean firms SK hynix and Samsung lead in memory chip production. This licensing system could enable Beijing to stop semiconductor flows to the United States and disrupt the American domestic supply chain.
Taiwan’s economy ministry issued a clarification via Reuters, stating local chip firms, including TSMC, are not currently affected by the measures. The reason given is that specific rare earths used in semiconductor manufacturing are not yet included in the restricted materials list. This announcement provided temporary relief for the AI supply chain, contingent on the controls not being broadened in the future to include those materials.
The new restrictions are scheduled to take effect on November 8. The policy signals a shift in China’s strategic focus, moving from preventing the use of its materials in military technologies to influencing America’s AI industry. Rare earth materials are integral to chip fabrication, playing a key role in equipment used for polishing and lithography. While TSMC has a diversified sourcing strategy for its materials, many of its rare earth supplies ultimately originate from Chinese suppliers.
The export controls also pose a risk to companies supplying essential equipment to chip manufacturers. Firms such as ASML and Tokyo Electron, which provide critical machinery to TSMC, face potential disruption. These restrictions could create difficulties for TSMC in scaling up its production if its access to necessary manufacturing tools becomes complicated, affecting the operational capacity of key players within the semiconductor ecosystem.
Should TSMC become subject to these Chinese export restrictions, the entire technology supply chain would be affected. The impact would be felt by American companies that are heavily dependent on the Taiwanese manufacturer, including NVIDIA, AMD, and Apple. NVIDIA is a leader in AI hardware, while AMD produces processing units and Apple relies on TSMC for processors in its consumer electronics. A disruption to TSMC’s output would directly translate to supply issues for these companies and their respective markets.
The tightened export control of rare earths raises concerns about the stability of the AI supply chain. The policy could create significant troubles for both chip suppliers and their customers.
