East and West Unite to Hamper China's Chip Ambitions

Following years of lobbying from Washington, Japan and the Netherlands have agreed to tighten restrictions on the export of chip manufacturing technology to Chinese companies. The news of the agreement was reported by Bloomberg, the Financial Times (News - Alert), and The New York Times. The controls are designed to limit China's ability to increase its own domestic chip production and come after the Biden administration announced similar restrictions in October 2022. The fear is that easier access to advanced semiconductors will allow China to shore up its military and artificial intelligence capabilities.

The move comes amid growing concerns about China's rising technological prowess and its potential to challenge the US' dominance in the tech sector. The Trump administration had already begun to take steps to limit China's access to advanced technology, including semiconductors, with the Commerce Department adding several Chinese companies to its entity list, which bans them from purchasing US technology without government approval. The Biden administration has continued this policy, with the recent restrictions on chip exports being the latest example.

There aren't any plans for a public announcement about the agreement, and it may take "months" for Japan and the Netherlands to "finalize legal arrangements," according to Bloomberg (News - Alert). Netherlands Prime Minister Mark Rutte has said that 'This is such a sensitive topic that the Dutch government chooses to communicate diligently, and that means that we only communicate in a very limited way" during a press conference on Friday when asked about the deal.

The Netherlands' restrictions will particularly affect ASML, the only company in the world that produces ultraviolet lithography machines crucial for advanced semiconductor production. CNBC previously reported that the company was already unable to ship its advanced extreme ultraviolet lithography (EUV) machine to China but that it could still ship older deep ultraviolet lithography (DUV) machines. The new restrictions are expected to prevent the sale of "at least some" of these DUV machines, Bloomberg previously noted, which will further limit the ability of Chinese companies to produce advanced chips and set up production lines. ASML CEO Peter Wennink previously told CNBC that China accounted for around 15 percent of the company's sales in 2022.

Wennink has said that any restrictions are unlikely to prevent China from building its own versions of the machines eventually. "If they cannot get those machines, they will develop them themselves," Wennink told Bloomberg. "That will take time, but ultimately they will get there."

On the Japanese side, the restrictions are expected to impact companies such as Nikon and Tokyo Electron. Japan has a strong semiconductor industry and has been a major supplier of chip-making equipment to China. The restrictions on exports to China will likely hit these companies' bottom lines and could even lead to job losses.

The move by Japan and the Netherlands to restrict chip exports to China is not only a blow to China's tech industry, but it also has the potential to damage the global semiconductor industry. Semiconductors are a critical component in a wide range of technology products, including smartphones, computers, and other electronic devices. The global semiconductor industry is worth trillions of dollars, and China is a major market for these products. If China is unable to access advanced semiconductors, it could lead to a slowdown in the global tech industry, with ripple effects felt throughout the global economy.

As well as cutting off exports to China, the White House has used its influence to stimulate domestic chip production. President Joe Biden signed the $280 billion CHIPS and Science Act last August, which includes $52 billion in subsidies for semiconductor manufacturing. Intel (News - Alert), TSMC, and Samsung have all either announced or are actively building new semiconductor manufacturing facilities in the US.

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