The Biden administration’s successful effort to get Japan and the Netherlands on board with chip-sector export restrictions to China is a victory for American diplomacy. But sustaining the strategy will require serious work.
Japan and the Netherlands agreed on Friday to join the US in limiting exports of advanced chip-making equipment to China. The three countries dominate the manufacturing of equipment for advanced semiconductors, so the plan could make it even more difficult for China to develop its own chip industry.
Japan and the Netherlands are particularly prominent in a manufacturing process called lithography: using light to print tiny circuits on silicon wafers. Dutch manufacturer ASML essentially monopolizes the production of the equipment needed for a process called extreme ultraviolet lithography, or EUV, used to make the most cutting-edge chips. It has already stopped shipping EUV machines to China.
But since the Biden administration expanded its chip-related sanctions on China in October, some older Dutch and Japanese technologies may also need to be banned for the US measures to take effect – and let alone absorb the impact. Avoid forcing American companies. Japan’s Nikon competes with ASML in supplying parts for a technical process called deep ultraviolet lithography, or DUV, which is one step less advanced than EUV. Friday’s agreement will likely ban Japanese and Dutch companies from shipping at least some models of DUV machines.
However the silence of the Dutch and Japanese governments so far about the actual details of the deal has been telling. Both countries are likely to take a hit from China, which has been a major customer of chipmaking tools. Even though it hasn’t shipped its $150 million worth of EUV machines to China, about 14% of ASML’s system sales in 2022 would come from the country. There may also be some remaining disagreement with the US over how far the sanctions should go.
The initial impact is likely to be limited – although it could seriously complicate efforts to build new facilities near the state-of-the-art, and also present a challenge for servicing some existing parts. But unlike past one-sided fights, the US has finally managed to persuade its allies to sign up to its strategy to contain China’s chip ambitions. That in itself is notable, especially as Europe and the US are embroiled in a separate dispute over the Joe Biden administration’s green technology subsidies.
And if the US and its allies agree to ramp up their sanctions on China even further, there could be more levers to pull. Some analysts believe the current restrictions may not go far enough: Dylan Patel, principal analyst at Semianalysis, said in a newsletter that stopping shipments of new equipment to China would not be enough because the country could still use its existing machines. Could He suggests limiting shipments of photoresist, a light-sensitive material used in lithography, for example. Japanese companies are leaders in the manufacture of materials. Japan’s Tokyo Electron is a major manufacturer of equipment for coating and developing photoresist on silicon wafers.
Instead of waging a unilateral technology cold war with China, the US is wise to seek help from its allies. These latest sanctions won’t completely disrupt China’s chip industry, but they send a strong signal of allied unity, and may even presage measures to come. For Beijing and China’s chip-seekers, that may be the most worrying aspect of this latest salvo.