Paul van Gerven

13 July

The Dutch government will find it easier to resist US pressure than face China’s repercussions if it would sign off on the export ban for DUV lithography equipment.

Say you’re the most powerful country in the world and you want to keep it that way. First and foremost, that means that you need to maintain your technological advantage. You can either: a) funnel billions into semiconductor R&D, design and manufacturing to extend your lead, or b) cut off your main rival from essential manufacturing equipment, which happens to be supplied by a foreign company.

At first, it looked like the US would be doing a little of both. The House of Representatives and the Senate last year passed bills that cleared the way for supporting the domestic semiconductor industry with federal tax dollars. Meanwhile, the US denied one of China’s biggest tech firms access to advanced semiconductor technology and prevented all of China’s semiconductor manufacturers from using the world’s most advanced lithography equipment.

Now, the US might go all-in on the latter option after all, which is conveniently also the cheapest. Having fallen prey to partisan politics, as any issue does these days in Washington, the Chips for America Act has stalled in Congress. The 52-billion-dollar incentives for domestic chip manufacturing don’t seem like a sure thing anymore (the House and Senate each passed their own version of the bill with generous majorities; the issue is to reconcile these bills, particularly with respect to funding).

Repercussions

Sure enough, last week a report surfaced that the US is exerting diplomatic pressure on the Dutch (and Japanese) government to expand the existing EUV lithography equipment moratorium with DUV lithography equipment. It would, as Robert Maire of Semiconductor Advisors put it, “put China back in the stone age of chip manufacturing.”

A total DUV equipment ban seems highly unlikely, at least for the time being. Though the Dutch government has somewhat toughened its stance with respect to China, it won’t want to go Lithuania’s way. The Baltic state has incurred Beijing’s wrath by allowing Taiwan to open a de facto embassy in Vilnius, causing trade between China and Lithuania to be severely disrupted. Fearing such grave repercussions, the Dutch government will resist the diplomatic pressure from the Biden administration. The latter, ultimately, won’t force the issue.

Besides, it’s a big ask to request an export ban when American companies are allowed to keep selling their equipment to China. And what about the US companies running chip manufacturing operations over there? Or the fact that ASML’s sales in China last year were 40 percent higher than in the US?

Decoupling

Biden’s potential Republican successor, however, especially the one-who-must-not-be-named, won’t be as rational, nor will he value good bilateral relations as much. There’s plenty the next president can do to make the ban happen, with or without the Dutch government’s cooperation. If Huawei can be cut off from TSMC’s advanced semiconductors, then DUV shipments to China can be halted as well. In that respect, the ban will keep hovering over geopolitical machinations for the foreseeable future.

And over ASML’s business, of course. Arguing that isolating China will only speed up the country’s march to self-sufficiency, the equipment manufacturer has repeatedly stated that it prefers to keep doing business with Chinese companies and foreign companies with Chinese sites. If that proves impossible, ASML maintains that its financial bottom line wouldn’t change – chips that don’t get manufactured in China will be produced somewhere else. So a ban would basically mean changing the shipping addresses on a bunch of crates.

That’s only true in the current geopolitical context, however. If the US in the not too distant future starts to double down on its decoupling policies and bully its allies into doing the same, the semiconductor market would be among the hardest hit. Such scenarios still feel unreal, but who’d bet big money these days that it could never happen?

Main image credit: ASML