Two senior Trump administration officials told Reuters Thursday that China’s biggest chipmaker, SMIC, has been quietly shipping semiconductor manufacturing equipment to Iran’s military-industrial complex for nearly a year — and shows no sign of stopping.
The transfers, which the officials described as including technical training on SMIC’s processes, could help Tehran build everything from precision-guided munitions to hardened communications systems at a time when Iranian forces are still exchanging missiles and drones with U.S. and Israeli targets.
The disclosures, made on the condition of anonymity because they involve still-classified intelligence, land like a live grenade in an already combustible mix of Middle East war and U.S.-China rivalry.
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Beijing has long insisted its business with Iran is strictly commercial. SMIC itself has repeatedly denied any ties to the Chinese military, even after Washington blacklisted it in 2020 and tightened the screws again in 2024 following its surprise production of a 7-nanometer chip for Huawei’s Mate 60 Pro smartphone.
The timing could hardly be worse for diplomacy. President Donald Trump is scheduled to visit Beijing in May, a trip both sides had hoped would produce at least a framework agreement on stabilizing the bilateral relationship. Negotiators had been eyeing progress on everything from tariff relief to clearer rules on technology exports. Now, the SMIC allegations threaten to poison the atmosphere before Air Force One even touches down.
One U.S. official told Reuters the equipment flow “almost certainly included technical training” on advanced node techniques. While it was not clear whether any of the tools contained U.S.-origin components, which would be a straight-up sanctions violation, the mere transfer of know-how from a company Washington has spent years trying to hobble is being viewed inside the administration as a direct challenge.
SMIC has made incremental but stubborn progress despite export bans on the most sophisticated lithography machines from ASML and U.S. suppliers like Applied Materials, Lam Research, and KLA. It has relied on older deep-ultraviolet tools, multi-patterning tricks, and domestic alternatives to push into 7nm-class production.
Handing even that level of capability to Iran could let Tehran shorten the time it takes to field more sophisticated electronics for its missile, drone, and radar programs — exactly the kind of incremental military edge U.S. and Israeli planners worry about.
The revelations also highlight the limits of America’s long-running campaign to keep China from achieving semiconductor self-sufficiency. Despite layered sanctions, SMIC has kept its most advanced fab in Shanghai humming by sourcing what it can from non-U.S. channels and investing billions in its own R&D. Critics inside the U.S. government have long warned that third-country diversions and dual-use loopholes would eventually undermine the controls; the Iran shipments appear to be Exhibit A.
China, for its part, has walked a careful line since the U.S.-Israeli strikes began on Feb. 28. Foreign Minister Wang Yi repeated this week that all parties should seize any opening for peace talks. Beijing has avoided explicit alignment with either side while quietly expanding its economic footprint in Tehran — including, Reuters reported last month, near-final talks on Chinese anti-ship cruise missiles for Iran.
The SMIC story adds another layer of friction just as markets are still digesting the war’s impact on oil prices and global inflation. Any escalation in U.S. sanctions, whether fresh designations on SMIC executives, secondary penalties on Chinese banks that finance the trade, or new restrictions on allied exports, could ripple through already jittery supply chains. Chip stocks on both sides of the Pacific would feel the chill.
Inside the White House, the disclosures are being read as more than a sanctions enforcement headache, the report indicates. They are seen as a test of whether Beijing is willing to rein in its state-linked champions when those companies cross into active conflict zones.
One official reportedly said that this is not just about chips; it is about whether China will continue to treat sanctioned entities as national champions even when they are feeding the war machine of America’s adversary.
For now, the administration is weighing its next move. Options range from public condemnation to targeted enforcement actions that could complicate the very negotiations Trump hopes to clinch in Beijing.