Can TSMC Weather Trump’s Storm Of A $1 Billion-Plus Fine Or More, As It Faces A Tax Trap In Trump’s America?
Donald Trump recently announced a $100 billion investment from TSMC, Taiwan Semiconductor Manufacturing Company that includes building five additional chip facilities in coming years, what he called the world’s most powerful company.
In the present, the semiconductor giant could face a penalty of $1 billion or more to settle a U.S. export control investigation over a chip it made that ended up inside a Huawei artificial intelligence processor.
The U.S. Department of Commerce has been investigating the world’s biggest contract chipmaker’s work for China-based Sophgo. The design company’s TSMC-made chip matched one found in Huawei’s high-end Ascend 910B artificial intelligence processor.
Huawei – a company at the center of China’s AI chip ambitions that has been accused of sanctions busting and trade secret theft – is on a U.S. trade list that restricts it from receiving goods made with U.S. technology.
TSMC made nearly 3 million chips in recent years that matched the design ordered by Sophgo and likely ended up with Huawei, according to Lennart Heim, a researcher at RAND’s Technology and Security and Policy Center in Arlington, Virginia, who is tracking Chinese developments in AI.
The $1 billion-plus potential penalty comes from export control regulations allowing for a fine of up to twice the value of transactions that violate the rules, the sources said.
Because TSMC’s chipmaking equipment includes U.S. technology, the company’s Taiwan factories are within reach of U.S. export controls that prevent it from making chips for Huawei, or producing certain advanced chips for any customer in China without a U.S. license.
Heim said that based on the design, which is for AI applications, TSMC should not have made the chip for a company headquartered in China, especially given the risk that it could be diverted to a restricted entity such as Huawei.
Shares of TSMC traded in the U.S. erased a nearly 3% gain to trade slightly lower after the news.
Penalizing TSMC comes at a critical moment for U.S.-Taiwan relations as the two begin renegotiating their trading relationship after Trump last week slapped a 32% levy on imports from Taipei. The tariffs exclude chips, but Trump has said his team is looking at levies on semiconductors.
It could not be determined how the Trump administration will proceed with TSMC or when the matter would be resolved. Top officials have said they plan to seek higher penalties for export violations even as a spokesperson for the Commerce Department declined comment.
TSMC Reaffirms Compliance
Meanwhile, as pressure mounts on TSMC over alleged export control violations, the company has reaffirmed its commitment to following U.S. laws. In a statement, TSMC spokesperson Nina Kao said the company has not supplied chips to Huawei since mid-September 2020 and is fully cooperating with the U.S. Department of Commerce in its ongoing investigation.
So far, no formal action has been taken against TSMC. However, in such cases, the Commerce Department typically issues a “proposed charging letter” to entities it suspects of violating export regulations. This preliminary step outlines the alleged infractions, including transaction values and dates, and provides a 30-day window for the company to respond before any enforcement action is finalized.
Speaking at a recent conference in Washington, U.S. Commerce Secretary Howard Lutnick reiterated the administration’s hardening stance on export control violations, particularly concerning China.
“We are going to seek in this administration a dramatic increase in enforcement and fines for people who break the rules. We have had enough of people trying to make a dollar supporting those who seek to destroy our way of life.”
Jeffrey Kessler, confirmed in March as Under Secretary of Commerce for Industry and Security, echoed these concerns. At his nomination hearing in February, he called reports of TSMC chips reaching Huawei “a huge concern,” emphasizing the need for “strong enforcement.”
A potential 10-figure penalty, while rare, is not without precedent – in 2023, Seagate Technology Holdings paid a $300 million fine for shipping over $1.1 billion worth of hard drives to Huawei in violation of export restrictions.
Under The Lens
TSMC first came under scrutiny last fall, after Canadian tech research firm TechInsights dismantled Huawei’s 910B AI accelerator and found a chip — or “die” — made by TSMC embedded in the multi-chip system. Following the findings, TSMC suspended shipments to China-based design firm Sophgo, which had previously denied ties to Huawei. In November, the Commerce Department formally ordered TSMC to halt shipments of seven-nanometer and more advanced chips to China that could be used for AI-related purposes.
In January, Sophgo was added to the Commerce Department’s restricted entity list – the same designation that has long applied to Huawei – further cementing suspicions of their connection.
Huawei’s Ascend 910B processor, in which the TSMC-made chip was discovered, is widely regarded as China’s most advanced AI chip to date, providing a domestic alternative to market leader Nvidia.
The Declaration
At a recent Republican National Congressional Committee event, Trump criticized the Biden administration’s $6.6 billion grant to TSMC’s Arizona unit. “TSMC, I gave them no money,” Trump said. “All I did was say, if you don’t build your plant here, you’re going to pay a big tax.” He indicated the tax could be as high as 100%.
The remarks add additional pressure on TSMC as it attempts to expand its global footprint while balancing regulatory compliance and diplomatic sensitivities.
All eyes remain on how the Commerce Department will proceed and whether one of the world’s most critical tech players can weather the geopolitical storm.
