Chip Alliance Should Spook China

"The Biden administration's successful effort to bring Japan and the Netherlands on board with its chip-sector export restrictions to China is a victory for U.S. diplomacy. But sustaining the strategy will require serious work.

Japan and the Netherlands agreed Friday to join the U.S. in limiting exports of advanced chip-manufacturing equipment to China. The three countries dominate the manufacturing of equipment for advanced semiconductors, so the plan could make it even harder for China to develop its own chip industry.

Japan and the Netherlands are particularly dominant in a manufacturing process called lithography: using light to print tiny circuits on silicon wafers. Dutch manufacturer ASML essentially monopolizes the production of equipment needed for the 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 curbs on China in October, some older Dutch and Japanese technologies may also need to be restricted to make the U.S. measures effective -- and avoid forcing U.S. companies to absorb the impact alone. Japan's Nikon competes with ASML in supplying parts for a technological process called deep ultraviolet lithography, or DUV. Friday's agreement likely will restrict Japanese and Dutch companies from shipping at least some models of DUV machines.

The silence from the Dutch and Japanese governments so far about the actual details of the deal is telling, though. The two countries likely fear blowback from China, which has been a big customer of chip-making tools. There may also be some remaining disagreements with the U.S. on how far restrictions should go.

The initial effect will likely be limited -- although it could seriously complicate efforts to build new facilities near the cutting edge, and might also pose a challenge for servicing some existing parts.

But unlike previous unilateral fusillades, the U.S. has finally managed to persuade its allies to sign up for its strategy to contain China's chip ambitions. That in itself is notable, especially as Europe and the U.S. are embroiled in a separate dispute over the Biden's administration's green technology subsidies.

Instead of fighting a unilateral technology Cold War with China, the U.S. is wise to ask its allies for help. These latest restrictions won't completely hamstring China's chip industry, but they send a strong signal and could even presage further measures to come. For Beijing and China's chip aspirants, that may be the most worrying aspect of this latest salvo." [1]

1. Chip Alliance Should Spook China
Wong, Jacky.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Jan 2023.