REPORTS FROM THE NETHERLANDS say that Washington is pressing the Dutch government to ban exports of semiconductor fabrication equipment to China.
ASML, one of the key manufacturers in the sector, is headquartered in Veldhoven near Eindhoven in the southern Netherlands. China is the company’s third-largest market after Taiwan and South Korea, worth $2.1 billion in 2021, one-sixth of total annual sales.
Since 2019, a Dutch-US agreement on export licences for dual-use technologies has prevented the company from selling Chinese firms its most advanced lithography systems — the machines that use ultraviolet light to trace the circuitry on computer chips (a detail of which can be seen in the photograph above).
According to the reports, Washington wants to expand the scope of the restrictions as it moves to slow Beijing’s drive for technological self-sufficiency. Last year, the US National Security Commission on Artificial Intelligence recommended that the United States ask its allies to prevent all lithography tool exports to China.
The Catch-22 for Washington is that restrictions on sales of advanced Western technology to China only spur Bejing’s development of its indigenous tech industries to end run US sanctions.
Last month, Bloomberg reported that China’s chip industry was growing faster than any other, with 19 of the world’s 20 fastest-growing chip industry firms being Chinese, compared to just eight a year earlier.
Beijing is pouring billions of dollars of investment into chipmaking by funding national champions, encouraging Chinese firms to ‘buy Chinese’ and through industrial policy programmes like ‘Little Giants’, which backs high-tech start-ups. It is also lobbying as discretely as it can manage against a bill in the US Congress that would provide $52 billion to supercharge US semiconductor manufacturing.
The long-term opportunity for China lies in developing a globally competitive chip industry that would dethrone its US rival and perhaps fatally damage US technological leadership. Former Google chief executive Eric Schmidt and Harvard scholar Graham Allison wrote in the Wall Street Journal last month that:
If Beijing develops durable advantages across the semiconductor supply chain, it would generate breakthroughs in foundational technologies that the US cannot match.
Schmidt and Allison proposed that Washington use carrots (tax incentives and subsidies) and sticks (leaning on their governments) to encourage chipmakers TSMC and Samsung to partner with US chip designers and fabricators to manufacture advanced chips in the United States. That would do nothing but escalate Beijing’s reaction to what it already calls ‘technological terrorism’.