US plans to revoke TSMC’s license to ship chip parts to Chinese plant

The US signals a significant policy shift

The US government has told Taiwan Semiconductor Manufacturing Company (TSMC) that its authorization to ship chipmaking gear to its Nanjing plant freely will be revoked by December 31, 2025.

This “validated end user” waiver previously let TSMC move US-origin tools into China without delays. Losing it means every shipment will now need separate licensing. For the world’s biggest chipmaker, it introduces uncertainty in running one of its fabs on the Chinese mainland

What the VEU program actually does

The validated end user, or VEU, program was designed to simplify exports. Eligible companies in approved countries could import US-origin technology without applying for a license each time.

For fabs, the VEU program facilitated smoother access to many spare parts, certain consumables, and equipment, though some sensitive components or materials still required specific export controls.

Once TSMC’s VEU is revoked, every shipment must clear Washington’s export review individually. That shift slows things down and increases costs, even for routine maintenance. It’s a bureaucratic hurdle that could impact output reliability.

Samsung and SK Hynix face the same rule

TSMC isn’t alone. Samsung and SK Hynix face the same rule. Intel Semiconductor (Dalian) Ltd was also removed from the VEU program.

Together, these actions mark a coordinated tightening of export rules targeting foreign firms that operate fabs inside China.

Washington’s intent is clear: close loopholes allowing advanced chipmaking equipment to flow into the Chinese tech ecosystem. For Korean and Taiwanese chipmakers, it’s another geopolitical complication.

Why TSMC’s Nanjing plant matters

TSMC’s Fab 16 in Nanjing makes chips using 16nm and 28nm processes. These aren’t the cutting-edge nodes powering AI servers or the latest iPhones, but they are vital for cars, consumer devices, and telecom gear.

Many of these chips still fall under US export restrictions because they can support sensitive technologies. For TSMC, the site represents a modest portion of its global capacity. That sounds small, but it still serves big customers in China’s massive electronics market.

TSMC’s official response

In its statement, TSMC confirmed receiving the US notice. The company said it is “evaluating the situation and taking appropriate measures, including communicating with the US government.”

At the same time, it stressed a commitment to “uninterrupted operation of TSMC Nanjing.” That’s a careful balancing act: reassuring investors, calming Chinese partners, and showing Washington it intends to comply.

Shares still dipped about 1.4% on the news, reflecting investor concern about operational risks and political fallout.

How licenses will work in 2026

From January 2026, TSMC and its suppliers must request US licenses for each shipment of tools, spare parts, or controlled chemicals bound for Nanjing.

US officials say licenses will be issued if necessary to keep facilities running. However, each case will take time and scrutiny, potentially creating delays.

The Commerce Department expects around 1,000 new applications annually from all affected firms, a paperwork surge that underscores how export controls now reach deep into semiconductor operations.

Why the US is tightening the screws

Washington’s broader goal is to limit China’s ability to produce advanced semiconductors that could power artificial intelligence, military systems, and surveillance technologies.

While China’s local champions like SMIC are racing ahead, US regulators want to cut off their access to high-precision gear. Even older 16nm nodes can be repurposed for strategic applications.

By revoking blanket waivers for allies’ plants in China, the US hopes to prevent indirect transfers of sensitive technology to Beijing.

How China might respond

Beijing is unlikely to stay quiet. The move feeds into China’s narrative that Washington is weaponizing technology controls. Officials may respond with new incentives for domestic firms like SMIC or Hua Hong to ramp up capacity.

China could also increase subsidies for local equipment makers such as Naura and AMEC, accelerating its push for chip independence.

In the near term, though, replacing Western tools remains difficult, especially in lithography, where no Chinese firm matches TSMC’s needs.

The risk for TSMC’s operations

TSMC’s Fab 16 relies heavily on US and European suppliers like Applied Materials, KLA, Lam Research, and ASML. Swapping even one tool type for a Chinese alternative would require requalification, testing, and potential yield losses.

That disruption isn’t attractive for a fab that needs steady, cost-efficient output. The company could be forced to localize its supply chain partially, but whether that meets its strict production standards is uncertain. Operational risk now hangs over Nanjing.

Why Samsung and SK Hynix are hit harder

Compared with TSMC, Korean chipmakers Samsung and SK Hynix have far larger footprints in China, particularly in memory production.

Losing their VEU waivers forces them into the same licensing maze, but the stakes are higher given their dependence on Chinese fabs for global output.

Analysts expect more disruption for memory makers than for TSMC. Still, Washington’s uniform approach signals no foreign firm will get special treatment for running advanced fabs on Chinese soil.

The economic impact so far

Markets reacted quickly. TSMC’s New York-listed shares dipped over 2%, while equipment suppliers like Applied Materials and ASML also slid.

Investors worry about reduced sales of high-margin tools if licensing drags on. For TSMC, revenue exposure from China is around 11% of its $90 billion annual turnover.

That includes more than just Nanjing; uncertainty adds pressure. Even a modest slowdown in Chinese shipments could affect quarterly results and customer confidence.

Taiwan’s government weighs in

Taiwan’s Ministry of Economic Affairs said the revocation would “impact the predictability” of TSMC’s Nanjing operations. Still, it stressed that the plant accounts for only a small share of its global capacity and is unlikely to affect Taiwan’s overall chip competitiveness significantly.

That message aims to reassure global customers that Taiwan remains the world’s most reliable chip hub.

Yet it also underscores how intertwined Taiwan’s chip champions are with Washington’s export-control agenda and how vulnerable they are to shifting US policy.

How does this fit into US-China tensions?

The revocation is the latest move in a broader US strategy to curb China’s tech ambitions. Export bans on AI chips from Nvidia and AMD, pressure on ASML to stop supplying advanced lithography, and now license revocations for allied fabs all point to a tightening ring.

It’s not just about security, it’s about economic rivalry. Chips are the backbone of AI and advanced industries, and Washington wants to ensure China can’t leapfrog ahead using foreign equipment.

How TSMC could adapt

One option for TSMC is diversifying equipment sources by experimenting with Chinese-made tools where possible. Another is stockpiling spares and consumables before the waiver expires.

The company could also lean on diplomatic channels through Taiwan’s government to secure license pre-approvals. But none of these are perfect solutions.

For a high-volume fab, predictability matters most. Any hiccup can ripple into lost efficiency, higher costs, and unhappy customers. TSMC will be weighing every workaround carefully.

Why Washington is willing to take the risk

Critics argue that cutting off TSMC’s China fab risks hurting allies more than China. However, Washington views it differently: even minor disruptions are acceptable if they slow Beijing’s progress on critical technologies.

By raising the cost and complexity of operating advanced fabs in China, the US hopes to deter foreign firms from deepening ties there.

The message is blunt: access to US tools comes with strings, and those strings are tied to Washington’s strategic priorities.

See how TSMC is making a massive $100 billion investment to boost US production of AI chips.

What comes next for TSMC?

As the December 2025 deadline approaches, TSMC will lobby Washington, prepare its operations, and seek special arrangements to minimize disruption.

Much will depend on how quickly licenses are processed in 2026 and whether exceptions are quietly granted. For now, uncertainty rules.

Customers and suppliers alike are watching closely, knowing the decision is more than paperwork; it’s about who controls the future of chips. One thing is sure: the US-China tech battle just escalated again.

Learn why TSMC believes AI demand will remain strong even as trade pressures intensify.

What do you think about the US not permitting the import of TSMC’s chip to the US? Please share your thoughts and drop a comment.

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This slideshow was made with AI assistance and human editing.