TSMC Chips in Chinese AI Chip Spark US Export Control Concerns

Potential U.S. Export Violations Scrutinized in AI Chip Made by TSMC for Chinese Firm

Key components of a powerful artificial intelligence chip produced for the Chinese company Enflame were manufactured by Taiwan Semiconductor Manufacturing Co. (TSMC), raising concerns about potential violations of U.S. Export controls. The findings, initially detailed in a report by the semiconductor research firm TechInsights, have prompted briefings for U.S. Officials, according to a source familiar with the matter. The situation highlights the increasingly complex geopolitical landscape surrounding the production and distribution of advanced semiconductors, and the U.S. Effort to maintain its lead in AI development.

The core of the issue centers on the Enflame S60 chip. TechInsights initially classified the chip as potentially subject to U.S. Export restrictions, which have been tightened in recent years to limit the flow of advanced computing power to China. These restrictions, established by the Commerce Department, are based on a chip’s computational capacity and power relative to its size. According to experts, if the Enflame S60 meets those criteria, its sale to Chinese AI companies could be illegal under rules put in place from late 2022 onward.

Yet, the classification has become a point of contention. TSMC disputes TechInsights’ assessment, stating that the chip “does not meet the criteria for classification as a controlled AI chip” and that the initial report has been corrected. TechInsights has since altered the publicly viewable classification to “TBD” and then removed it from its website entirely, stating that its technical analysis is “ongoing and not complete.” The firm declined to provide the full report to NBC News.

What are the U.S. Export Controls?

Since 2022, the U.S. Has asserted its ability to control the export of certain items – including AI chips – made with U.S. Technology, software, or tools, even if those items are manufactured outside of the United States. This broad assertion stems from the pervasive use of American technology in the global semiconductor supply chain. The specific regulations, outlined in the Code of Federal Regulations, detail the criteria for determining which chips are subject to these controls.

TSMC, a leading global chip manufacturer, is subject to these rules. The company is prohibited from shipping cutting-edge chips intended for AI purposes to Chinese companies without obtaining specific export licenses. However, obtaining such licenses is rare, as the Commerce Department rarely grants them due to concerns about diverting advanced chips to the Chinese military and intense global competition in the AI sector. Officials said Enflame did not receive a license in 2023, 2024, or 2025.

A Pattern of Concerns with TSMC and China

This isn’t the first time TSMC has faced scrutiny regarding potential export control violations. Reuters reported in April that the Commerce Department opened an investigation into TSMC over how its chips ended up in processors from Huawei, a Chinese tech company already subject to U.S. Export restrictions. The potential penalty for that alleged violation could exceed $1 billion. The Commerce Department has not commented on the status of that investigation.

The current situation with the Enflame S60 chip adds to these concerns. Experts suggest that Enflame is closely linked to Tencent, one of China’s largest technology companies, making the potential violation particularly noteworthy. While the number of Enflame S60 chips produced may be smaller than the Huawei-Sophgo incident, it demonstrates a continuing pattern of chips potentially circumventing export controls through TSMC. Reports from Chinese newspapers indicate that Enflame has already deployed tens of thousands of S60 chips in data centers and infrastructure critical for AI development.

How the Process Works: Export Control Classification

Determining whether a chip is subject to export controls is a complex process. TechInsights, in its initial analysis, classifies export control details – known as ECCNs – based on information from manufacturers, third-party suppliers, or publicly available data. However, the firm acknowledges that its inferences are not final regulatory decisions. The Commerce Department ultimately makes the final determination.

The process involves a detailed technical analysis of the chip’s capabilities, including its computational power and intended applications. This analysis is then compared against the criteria outlined in the U.S. Export control regulations. The Commerce Department can request additional information from the chip manufacturer or other relevant parties to aid in its assessment.

What Remains Unclear

Despite the growing scrutiny, several key details remain unclear. TechInsights has not released its full report on the Enflame S60 chip, making it difficult to independently verify its initial assessment. The Commerce Department has declined to comment on whether it is investigating the potential violation involving the Enflame chip, or the status of the Huawei investigation.

It is likewise unclear how the chips may have circumvented export controls. The investigation will likely focus on determining whether TSMC knowingly shipped the chips to Enflame without the necessary licenses, or whether there was a breakdown in the company’s compliance procedures.

The situation underscores the challenges of enforcing export controls in a complex global supply chain. As the competition for AI dominance intensifies, the U.S. Government will likely continue to tighten its restrictions on the export of advanced semiconductor technology to China, and closely monitor the activities of key chip manufacturers like TSMC. Recent U.S. Export controls are giving the United States increasing leverage over Taiwan’s businesses, especially TSMC.