Trump Axing ‘Biden-Era’ Waivers in China Rattles Chipmakers

Taiwan Semiconductor Manufacturing Company’s factory in Nanjing, China.

(Bloomberg) -- President Donald Trump’s administration just tore up a quiet compromise that some of the world’s biggest chipmakers have relied on to maintain crucial operations in China. That tees up four months of complex policy talks to satisfy US national security concerns while avoiding disruptions to supply chains that underpin the global electronics market.

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At issue are so-called validated end user, or VEU, authorizations that have allowed Samsung Electronics Co., SK Hynix Inc. and Taiwan Semiconductor Manufacturing Co. to get supplies to factories in China without seeking Washington’s permission each time. Those waivers — which a South Korean official once said solved “the biggest trade issue” for the country’s chipmakers — are now set to expire at the end of this year.

That’s left government and industry officials to hash out an alternative approach that can make all parties confident the plants can continue to run smoothly. The stakes are particularly high for Samsung and SK Hynix given the scale of their China factories, which churn out components used in everything from smartphones to data centers. The South Korean and Taiwanese governments, meanwhile, find themselves once again navigating tensions between Washington and Beijing as the US continues a years-long campaign to constrain China’s tech ambitions.

The trio of companies secured their VEU designations under former President Joe Biden, after his administration imposed sweeping curbs on chip-related shipments to China over concerns that advanced semiconductors could lend Beijing a military edge. The waivers were designed to blunt the impact of the new controls on facilities that Biden officials could proactively designate as safe and secure, alleviating the need for firms to file hundreds of export license applications — and providing predictability in access to supplies from chemicals to spare parts to manufacturing equipment.

Key Trump officials, however, argue the VEU authorizations constitute a “Biden-era loophole” in US semiconductor restrictions, endowing foreign firms with privileges not granted to their American competitors — and jeopardizing US national security in the process. Shifting from blanket export authorizations to individual approvals, they say, would level the playing field while giving US officials more visibility into and say over shipments of sensitive technology to China.

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Washington’s concern surrounds “risks like technology leakage or equipment being diverted to Chinese firms,” said one South Korean trade official, who requested anonymity because they were not authorized to speak publicly. But given that Samsung and SK Hynix already made substantial security assurances as part of their VEU designations, the official said, “the real question is how to reassure them on that point.”

From Seoul’s perspective, “the best outcome would be to maintain the VEU status. But if the US government is determined to revoke it, then we’ll need to find alternatives” that reduce bureaucratic strain on industry and government, the official said.

For its part, Trump’s team has explicitly said the US intends to grant the licenses necessary for companies to operate their existing factories in China, without approving any permits that would allow the firms to expand or upgrade those facilities. (To be sure, the companies already all faced limits on manufacturing growth in China, a condition of subsidies they won to build plants on US soil.)

Still, some in the chip industry worry that the sheer volume of licenses required — some 1,000 annually for Samsung and SK Hynix’s China facilities, corresponding to nearly 500 hours of work — could prove challenging to process quickly. Any bureaucratic delays could translate to snags in production, given that export permits are required for certain consumable goods that require regular replenishments. Taiwan’s Ministry of Economic Affairs has warned that while losing TSMC’s VEU waiver won’t hurt overall industrial competitiveness, it will impact that China plant’s “future operational predictability.”

Asked about concerns regarding export approval timelines, a US official dismissed them as unfounded. Washington has a robust system to issue licenses, they said, allowing officials to adjudicate national security matters while avoiding manufacturing disruptions.

Trump’s team has also engaged substantively on strategies to smooth the process, according to people familiar with the talks. One possible outcome, the people said, is that companies could bundle license applications for bulk approval, reducing the total amount of paperwork that needs to churn through the system.

But any ideas that don’t entail such applications aren’t on the table, the US official said — including, for instance, allowing companies to keep their VEU status but requiring them to notify US agencies of upcoming shipments. Under that proposal, which has been floated in recent weeks, exports would proceed unless Washington says ‘no,’ rather than only if US officials actively say ‘yes.’

The Commerce Department’s Bureau of Industry and Security, which oversees chip export restrictions, did not provide comment in response to emailed questions for this story, which is based on interviews with around a dozen government and industry officials in the US and Asia. Those people all asked not to be identified to discuss private, ongoing conversations.

SK Hynix said it would “maintain close communication with both Korean and the US governments and take necessary measures to minimize the impact on our business.” A Samsung representative declined to comment, while TSMC didn’t respond to requests for comment.

China, for one, is not happy. Authorities there responded to the US move by reiterating a longheld complaint that Washington uses export controls — a national security tool — to disrupt global supply chains. Days later, Beijing said it would impose levies on additional US optical fiber imports after an anti-dumping probe. That all adds further complications to ongoing trade talks between the two countries, as Trump pursues a bilateral deal and a meeting with Chinese leader Xi Jinping — a goal for which his team has been willing to relax other semiconductor curbs.

The Trump administration’s VEU move also comes in the middle of trade negotiations between the US and Taiwan, as well as discussions in Washington about separate semiconductor tariffs. Seoul, meanwhile, has already clinched a trade accord with the US — but officials are now confronted with the hard-nosed reality that shared defense priorities and billions of dollars of investment plans won’t shield partners from the US-China tech conflict.

“I think it boils down to a) the US administration’s indifference to making allies happy or to any concessions to their business interests,” said Brad Glosserman, senior adviser for the Pacific Forum think tank, on the reasons for ending the waivers. “And b) the belief that those exemptions only gave them business that US companies should have. So, the hell with the exemptions.”

Conversations about the VEU program began earlier this summer, according to people familiar with the talks. Officials at companies — and some within the Trump administration itself — strongly advocated to maintain the waivers, while South Korean officials, who fought hard to secure VEU status for Samsung and SK Hynix in 2023, also raised the issue in broader trade negotiations. But after months of discussions, Washington made its decision clear last week: The VEU designations will expire at the end of this year.

While some Trump officials have said they’d like to see TSMC, Samsung and SK Hynix’s factories wind down, according to people familiar with the matter, the goal at BIS is not to use the VEU revocation to force those factories offline. For one, that could create a ready supply of restricted chip gear in the Chinese market — a prospect Washington wants to avoid.SK Hynix Inc. 12-layer HBM3E memory chips and a LPDDR5X CAMM2 memory module.Photographer: SeongJoon Cho/Bloomberg

Disruptions to the facilities would also have significant commercial ramifications, given the sheer volume of production in question. While TSMC’s manufacturing footprint in China is relatively small, the South Korean companies rely heavily on their facilities in the Asian country. Around 40% of Samsung’s global NAND memory output and a similar share of SK Hynix’s DRAM production come from Chinese plants, along with about 25% of SK Hynix’s NAND output, according to the Futurum Group.

In one illustration of the stakes: In late 2022, after Biden’s first sweeping round of China chip curbs, SK Hynix officials said on an earnings call that the company was devising contingency plans to avoid manufacturing issues. One option was to use EUV equipment in Korea for certain production steps, and then finish the process at the Wuxi fabrication plant in China.

“Firms in sensitive sectors are well aware of the operating environment they face and likely have contingency plans in place to mitigate the fallout as best as possible,” said Stephen Olson, a former US trade negotiator now with the ISEAS-Yusof Ishak Institute in Singapore.

Washington for years has pressured key trading partners “to tilt away from China and closer to the US,” he said. “This is just another tightening of the screws.”

--With assistance from Debby Wu and Alastair Gale.

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