TSMC Embargos All China Companies

Let the trade war games begin!

Any chips from Taiwan Semiconductor Manufacturing Company with features seven nanometers or smaller are now completely banned for sale to any company in China. The triggering event seems to be TSMC product turning up on Huawei circuit boards, despite already having banned sales to that specific company.

TSMC’s current top of the line process produces chips with three nanometer features. They are a foundry operator, not a designer - they make chips for companies like Apple and Nvidia, and they depend on Dutch manufacturer Advanced Semiconductor Materials Lithography for the machines that make those incredibly tiny features.

There is another issue lurking in the chip market - the damage Helene did to the Spruce Pine Mining District. The vast majority of the quartz used to make the silicon wafers used for chip manufacturing come from this single location. The global supply chain has roughly three months worth of crucibles before it runs dry and I have not seen any reporting on how quickly they’re getting back into operation.

Another issue worth noting in this vicinity is China’s sanctioning drone maker Skydio. Their lone customer in Taiwan, the national fire service, was enough to trigger this. The embargo isn’t chips in this case, it’s batteries. China is responsible for the lion’s share of global rare earth metals mining, which makes them the first step for basically every high tech thing we do.

Recognizing this problem some years ago, the U.S. attempted to restart mining here, and California’s Mountain Pass is now producing one sixth of the global supply. While an important move strategically, China’s rare earth clay deposits will always be the cheapest source. Rare earth metals are chemically similar and occur together, with cerium dominating at roughly 50% of the mixture, but the weathering process that created China’s clay naturally depleted the low value cerium fraction.

Trump will start a trade war with China, which simultaneously hits our supply chain when we are in no way prepared, as well as potentially tipping over China’s fragile economy. There are simply too many moving parts, too many unknowns, to work out exactly how it will play out, but you should assume things you need may not be available starting the first quarter of 2025.