Chip machine
Adobe Stock / Connect world

The ongoing trade war between China and the West has spilled over into the semiconductor industry, with Dutch semiconductor equipment maker, ASML, caught in the crossfire.

ASML’s EUV lithography systems, which are essential for producing the smallest, fastest, and most powerful microchips, have become a key battleground in the global tech war.

The Netherlands’ recent tightening of its export rules could make it more difficult for ASML to sell its chip machines to China. The ban has resulted in concerns that a cornered China could potentially resort to IP theft.

“Is it going to be easy [for China to develop its own chip-making equipment]? Absolutely not,” said Peter Wennink, CEO of ASML. “Do we have to be highly sensitized on know-how leakage, on IP leakage? More than ever before.”

The move comes as the US and Europe seek to limit China’s access to advanced technology amid concerns that China is working on developing its own chip-making equipment and reducing its dependence on foreign suppliers.

Dutch Export Rules Impact Chip Machine Sales to China

The new Dutch rules require companies to apply for an export license for any dual-use items that could have military applications or could be used for human rights abuses. This includes lithography machines, which China’s chip makers rely on to remain competitive with their chip-producing rivals in South Korea, Taiwan, and the US.

Having attracted investments amounting to billions of dollars from firms like Semiconductor Manufacturing International Corp (SMIC) and Yangtze Memory Technologies Co (YMTC), China’s chip industry has been growing rapidly.

The export ban could hamper Chinese chip makers’ efforts to keep up with competitors without access to ASML’s chip machines–setting China back in its quest to become an independent technological powerhouse. SMIC has already slowed down its chip-making process due to a lack of access to ASML’s machines.

In contrast, Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, has a significant competitive advantage, having been using ASML’s lithography machines for years.

Chip Away at Dependency: China’s Push for Homegrown Chip Machines

Despite the potential downsides of the recent export ban for China, some experts believe it could result in the country accelerating its efforts to develop its own chip-making technology.

“If you shut out the Chinese with export control measures, you’ll force them to strive toward tech sovereignty, in their case real tech sovereignty,” Peter Wennink, CEO of ASML, told POLITICO. “In 15 years’ time, they’ll be able to do it all by themselves — and their market [for European suppliers] will be gone.”

China has already been pouring money into its semiconductor industry with the goal of reducing dependency on foreign technology and preserving its national security. In 2020, the government pledged $1.4 trillion up to 2025.

The Chinese government has also established the National Integrated Circuit Industry Investment Fund, which has the mandate to support the development of China’s semiconductor industry.

Taking strength from their government’s support, Chinese chipmakers have already started investing in homegrown lithography machines, with companies like Shanghai Micro Electronics Equipment Co (SMEE) and Advanced Micro-Fabrication Equipment Inc (AMEC) making significant advancements in developing their own chip-making equipment.

For ASML, the export ban could have a major impact on its sales, as China is one of its biggest customers–even if the company’s approach is to downplay the impact on its business, similar to how it downplayed the 2022 US-China sanctions.

ASML has been investing heavily in research and development to maintain its technological edge. The company recently launched its latest EUV lithography system, which is capable of producing chips with feature sizes as small as 3 nanometers.

As one of the biggest names in the semiconductor industry, the company has also signed deals with major chipmakers to supply them with its latest chip machines.

ASML’s Technological Edge: A National Security Issue?

ASML’s cutting-edge technology has become a national security issue for the US and Europe, with the US imposing export controls on ASML’s chip machines, citing concerns about China’s possible use of the technology for military purposes. The EU lawmakers have also been calling for tougher export controls on ASML’s dual-use items.

The export ban has grown the tension between China and the West over technology and national security even more, with China accusing the US and Europe of trying to contain its rise as a global superpower by restricting its access to advanced technology.

The US and Europe, on the other hand, have accused China of stealing their technology and using it to fuel its own economic and military ambitions.

As the tech war rages on–and with semiconductors at the heart of almost all advanced technologies, from smartphones to artificial intelligence–the tensions between China and the West show no signs of slowing down.

Some feel the answer is more collaboration between countries to maintain a level playing field and prevent conflicts from escalating into a devastating technological war that could have severe consequences for global peace and stability.

Whatever the case, the export ban on ASML’s chip machines is just the latest example of this geopolitical trade clash. It remains to be seen whether the ban will throttle China’s advancements in a way that benefits the West, or accelerate its homegrown initiatives while creating global conflict.

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