Taiwan's government strengthens 'silicon shield,' restricts exports of TSMC's most advanced process technologies

Taiwan plans to tighten control over exports of advanced process technologies as well as outbound semiconductor investments, reports Economic Daily. The new legal measures will enforce the 'N-1' technology restriction, essentially barring TSMC from exporting its latest production nodes, and introduce penalties for violations— but there's a major catch for TSMC.

The 'N-1' policy, confirmed by Premier Cho Jung-tai, will apply to TSMC's planned production in the United States. This approach restricts export of the most advanced process technology, allowing only one generation older to be deployed abroad.

Before this amendment, Taiwan's regulations did not explicitly require such controls for semiconductor manufacturing processes. These rules are based on Article 22 of the amended Industrial Innovation Act, which is expected to take effect by the end of 2025.

There is a major catch about TSMC's most advanced process technology, though. Today, TSMC has one leading-edge node: N3P manufacturing technology. But by the end of the year, it will start producing chips on its N2 fabrication process, which will become its flagship.

Starting from late 2026 and onwards, however, TSMC expects to have two flagship nodes: N2P for client applications that do not need advanced power delivery and A16 with Super Power Rail backside power delivery for HPC applications that consume a lot of power.

It remains to be seen which process technology will be considered as 'flagship' by Taiwanese authorities, and therefore export restricted, or if the government will ban exports of both nodes for a year when TSMC introduces successors for N2P and A16, its A14 and A16P nodes.

In addition, the amended law, passed after its third reading in the Taiwan parliament, gives Taiwan's authorities the right to reject or cancel overseas investments if they are found to compromise national security, damage the country's economic development, violate treaty obligations, or result in unresolved major labor disputes.

Under the new law, these six conditions are retained, but are now backed by higher-level legislation. The revised Article 22 also includes the possibility of partially or fully rejecting investments or attaching conditions to approval. If a company receives approval but later triggers any of these risks, the central authorities are authorized to demand corrective action or revoke the investment entirely if the issue is serious. The new law elevates existing investment restrictions from sub-regulations to formal legislation and adds legal consequences for non-compliance.

The Ministry of Economic Affairs stated that the law's implementation date will be announced only after the sub-regulations are revised, within six months. This means the earliest enforcement could begin by late 2025. The regulation's rollout comes amid rising geopolitical risks and after TSMC announced plans to increase its investments in its American production capacity from $65 billion over four years to $165 billion over an undisclosed period.

The amendment also introduces penalties that were not present before. Companies that invest abroad without prior approval may face fines ranging from NT$50,000 to NT$1 million ($30,830). If an investment is approved but the company later fails to correct identified violations — such as endangering national security or harming economic development—the authorities can impose repeated fines of NT$500,000 ($15,414) to NT$10 million ($308,286). But given that TSMC plans to invest $165 billion in its U.S. facilities, a $300,000 fine will hardly affect the company's bottom line.

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