After consistent pressure from the US, the Dutch government has recently put restrictions on their exports of microchip technology to China.
The Netherlands, home to ASML, is one of the world’s leading suppliers of semiconductors and is a major player in the global microchip supply chain alongside the US, Taiwan, South Korea, Japan and various European countries.
A semiconductor is a substance that controls the flow of electricity in electronic devices and one of its most popular uses is within the microchips used in computing components.
Given the ongoing “chip war” between the US and China, the Netherlands has found itself caught in the middle of mounting political tensions between the two countries.
And the Dutch government’s decision to ramp up restrictions on the exportation of its industry-leading chip technology to China, is a sure sign the country has chosen to side with the US in cutting Beijing off from the microchip supply chain.
According to Reuters, China has expressed disappointment that the Netherlands are allowing political relationships to affect basic economic trade.
The US’ main concern is that if China has access to ASML’s state-of-the-art chip technology, they would be able to start manufacturing the highest quality semiconductors in the world. Semiconductors of this standard would enable the development of highly powerful military and artificial intelligence technology.
The Netherlands’ Foreign Trade Minister, Liesje Schreinemacher, wrote a letter to Dutch lawmakers on Wednesday last week, explaining what the new export regulations would involve.
“Given the technological developments and geopolitical context, the government has concluded that it is necessary for the (inter)national security to expand the existing export controls on specific manufacturing equipment for semiconductors,” wrote Schreinemacher.
Schreinemacher also stated that the Dutch government’s new regulations are aimed at “preventing Dutch goods from contributing to undesirable end use, such as military deployment or in weapons of mass destruction; preventing undesirable long-term strategic dependencies; and maintaining Dutch technological leadership.”
This is similar to the reasoning the US gave when it created its own regulations on exporting semiconductors to China in October 2022.
The new restrictions will affect “very specific technologies in the semiconductor production cycle,” stated Schreinemacher.
One of the main technologies that will be restricted are deep ultraviolet (DUV) machines, which are included in ASML’s advanced chip printing portfolios.
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ASML has confirmed that from now on it will “need to apply for export licenses for shipment of the most advanced immersion DUV systems,” however it has not yet received disclosure as to what “most advanced” specifically means.
ASML is not expected to be financially affected by these measures. Their Chief Financial Officer, Roger Dassen, reported to Politico early in 2023 that China makes up 18% of the company’s orders.
These regulations are not something ASML is inexperienced in handling, however, as the company hasn’t had a license to sell another of its technologies, known as extreme ultraviolet light (EUV) technology, to China since 2019.
ASML added, “based on today’s announcement, our expectation of the Dutch government’s licensing policy, and the current market situation, we do not expect these measures to have a material effect on our financial outlook.”
The Netherlands are currently in coalition with 42 countries as part of the Wassenaar Arrangement.
This agreement covers export controls for technologies and conventional weapons which can be involved with civil and military activities.
But there’s a problem. Since Russia is also part of this agreement and could easily block the Netherlands’ new proposal, the Dutch government plans to establish its own export regulations which it will allow other European countries to follow suit.
Destabilization of the global microchip supply chain
China is one of the world’s biggest importers of microchip technologies, with experts suggesting that one of the reasons China is currently behind other countries in terms of domestic semiconductor production is that the country lacks “access to critical intangible expertise.”
However, according to the Wall St Journal, China plans to have 31 new chip factories in place by 2024.
This could be seen as China seeking more manufacturing independence, eliminating reliance on overseas sources which may become problematic if international political tensions continue to rise.
Although topics such as microchip manufacturing in China may not seem overly relevant to anyone outside of the competing countries in question, experts warn that the losses associated with curbing exports to China could lead to the destabilization of the entire microchip supply chain.
What’s more, the US and the Netherlands’ moves to cut China off from advanced chip technology may inadvertently encourage the country to produce more microchips domestically or possibly even take control of Taiwan’s world-leading semiconductor industry, which could, in turn, result in China taking over the microchip supply chain in the long run, possibly even causing a global recession.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: Computer circuit board. Featured Photo Credit: Chris Ried