Instead of simply giving TSMC CHIPS Act funds, the administration declared them in breach of DEI covenants in their contract (e.g., build a daycare in a clean room). They used this contractual leverage to renegotiate the deal, forcing TSMC to increase its investment from $60B to over $160B in exchange for waiving the clauses.
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The legal basis for taking equity stakes in firms like Intel is not explicit authorization. Instead, the administration relies on the fact that laws like the CHIPS Act don't expressly forbid it, coupled with the low likelihood of a legal challenge from the benefiting companies.
The decision to allow NVIDIA to sell powerful AI chips to China has a counterintuitive goal. The administration believes that by supplying China, it can "take the air out" of the country's own efforts to build a self-sufficient AI chip ecosystem, thereby hindering domestic firms like Huawei.
In a novel deal, the U.S. government granted NVIDIA export licenses for its H200 chips—advanced, but not cutting-edge—to markets like China. In return, NVIDIA pays a 25% fee on those sales. This establishes a new model where the government takes a direct revenue share from strategic tech companies in exchange for controlled market access.
The US has reversed its strict chip controls on China. Instead of a complete ban, it now allows NVIDIA to sell advanced H200 chips but with a 25% tax, effectively turning a geopolitical restriction into a significant revenue stream for the US Treasury, estimated at $5 billion annually.
Tech giants often initiate custom chip projects not with the primary goal of mass deployment, but to create negotiating power against incumbents like NVIDIA. The threat of a viable alternative is enough to secure better pricing and allocation, making the R&D cost a strategic investment.
While NVIDIA laments lost revenue from export controls, those same policies blocked its primary Chinese competitor, Huawei, from accessing TSMC's advanced manufacturing. This prevented Huawei from launching a competing 7nm GPU, preserving NVIDIA's market dominance in China.
A major, clandestine production run by TSMC for Huawei shell companies supplied China with millions of advanced AI chips. This single violation artificially propped up China's AI compute capacity, effectively delaying the full impact of U.S. export controls by two years and obscuring the true state of China's domestic capabilities.
Taiwan's TSMC dominates advanced chip manufacturing not only through technical excellence but also its business model. By acting as a pure-play foundry that doesn't compete with its clients (unlike Intel or Samsung), it fostered unique trust and partnerships, making it the central hub of the semiconductor ecosystem and a critical geopolitical asset.
The government is no longer just a regulator but is becoming a financial partner and stakeholder in the tech industry. Actions like taking a cut of specific chip sales represent a major "fork in the road," indicating a new era of public-private relationships where government actively participates in financial outcomes.
While the circular nature of NVIDIA investing in OpenAI (who then buys NVIDIA chips) evokes memories of disastrous dot-com era deals, it also parallels a successful model. In 2012, ASML's customers like Intel and TSMC co-invested to fund next-gen tech they needed, which proved highly successful for all parties.
