Chipping away at China

How the crown jewel of the Dutch high-tech industry has become a geopolitical pawn in neocon America's project to stymie China's technological progress.

ADSM is a global leader semiconductor manufacturing equipment. Its extreme ultraviolet (EUV) lithography machines are crucial for producing advanced chips, giving the Veldhoven-based tech company what is effectively a monopoly on the high-end of the market. Its current market capitalization of around €300 billion makes it the third most valuable enterprise in Europe, and it is perhaps the sole example of European leadership in digital technology. China is the largest market for semiconductors in the world, so not surprisingly, Chinese microchip companies are in turn ADSM’s largest market.

This unique and enviable position has placed ADSM directly in the crosshairs of the US government, which is desperately trying to kneecap China’s technological progress by limiting its access to high-end chips and semiconductor technology. In 2019, under pressure from the Trump administration, the Dutch government blocked sales to China of ADSM’s EUV technology. In November 2023, the Biden administration further tightened restrictions on sales of advanced semiconductors and the machines to manufacture them to China under newly enacted the Chips Act. ASML was told to stop servicing certain equipment it had previously sold to Chinese customers, as these machines now fall under the US’s new export restrictions. (“Understanding the latest US restrictions on chip exports to China”)

I have been following this story for some time, and so the following podcast of savvy economics and finance analyst Sean Foo (based in Singapore, I believe) naturally caught me eye. He picked up on comments made in Washington last week by the Dutch Minister of Economic Affairs, Dirk Beljaarts, in which he pushed back against US efforts to force ADSM to abandon the Chinese market. Sean sardonically observes that one of ASML’s smaller customers, the US, is insisting the company dump its largest customer, China, thereby in effect committing economic suicide:

A brief news item at Reuters quotes Beljaarts as saying:

"The Chinese are an important trade partner, as is the United States and many other countries in the world, and we have our own economy to upkeep and to make sure that our companies can do business as freely as possible."

"We know that ASML is a crown jewel for the Netherlands, which we are very proud of, and from our perspective, it's important that the company can operate as freely as possible within the boundaries that are there. And what we discussed primarily is how we can further progress the cooperation between the two countries."

(“On US visit, Dutch politician talks importance of ASML, China trade”, Reuters, 23 September 2024)

We probably should not make too big a deal out of this story, it is simply a public position statement. The interesting thing for me is the timing. On 1 October, the former Dutch prime minister Mark Rutte assumes the post of the secretary-general of NATO. Don’t let the “North Atlantic” in NATO deceive you, this “defensive alliance” is broadening its scope to encompass that vast part of the world it calls the “Indo-Pacific” region:

This week’s NATO summit in Washington left no mistake that China is now a focus of the alliance: The final communiqué, approved by all 32 NATO members, called China a “decisive enabler” of Russia’s war against Ukraine, expressed concern over its expanding nuclear arsenal, and accused Beijing of conducting “sustained and malicious cyber and hybrid activities” and employing “coercive tactics and efforts to divide the Alliance.” Lest there be any doubt that NATO has China in its sights, NATO reaffirmed that the “Indo-Pacific is important for NATO” and promised to continue to deepening cooperation with its Indo-Pacific partners—Australia, Japan, New Zealand, and South Korea, also known as the Indo-Pacific 4 (IP4)—on matters of shared security concerns involving China as well as Russia and North Korea. Put simply, NATO dispensed with the diplomatic niceties and fired a warning shot across the bow.

(Is NATO Making a Strategic Blunder?, Stimson.org, 13 July 2024)

The European Union’s unelected president, Ursula von der Leyen, recently re-appointed to a second five-year term, has also emerged as a China hawk:

Warning of growing ties between Moscow and Beijing, she presented a new vision for Europe’s relationship with China, a country that, she argued, holds enormous economic and geopolitical leverage over Europe.

That must change, von der Leyen asserted. With the framing of de-risking, not decoupling, she outlined a future for Europe’s greater economic independence. Learning the lessons from Europe’s overreliance on cheap Russian energy, Europe’s dependence on China for critical materials used for the green transition and digital technologies could not stand.

(“Ursula von der Leyen set Europe’s ‘de-risking’ in motion. What’s the status one year later?” Atlantic Council, 24 July 2024)

This is the milieu in which Mark Rutte will henceforth be ensconced. With structural fissures beginning to appear within both the European Union and NATO monoliths, there will be mounting pressure to preserve the increasingly tenuous “unity” that must at all costs be maintained. Crisis-manager, behind the scenes wheeler-dealer, and herder of cats par excellence Mark Rutte will need to vigorously impose the party line, and if his predecessor is anything to go by, the more hawkish and belicose he does so the better. Given this situation, what kind of a look would it be if behind his back the Dutch tech bros in Veldhoven are allowed to go off the reservation and continue to do business with the “enemy”?

The ironies abound. During his long tenure in office, Rutte worked tirelessly to serve the interests of the big Dutch multinationals (he himself did a stint at Unilever before entering politics). He expended extraordinary amount of political capital, presumably under the influence of an insider lobby group, on what came to look like a personal crusade to abolish a tax on corporate dividends, a move that would have favored a small number of foreign investors. But that was then, this is now.

There are growing signs neocon-infested Washington is preparing to pivot way from its focus on Russia and the Ukraine conflict to concentrate on what the neocons insist is the inevitable war with China (in 2026, 2028?). The US wants keep Europe firmly in its camp, and the wholly captured NATO/EU bureaucracies are the means to do so. If this means crashing the economies of the EU, so be it, corporate priorities be damned. How far Europeans (and figures like Mark Rutte) will go along with this mad and disastrous scheme remains to be seen. As complete as the “vassalization” of the Old Continent may seem, there is no such thing as stasis in power relations given the dialectical nature of the world; sooner or later the tide will turn, and we will see what remains of our once vibrant economies.

Whatever the fate of ASML, the Chinese are not standing idly by. The country is dilgently assembling its own domestic semiconductor supply chain, up to and including an alternative to ASML:

A newly revealed patent from Chinese lithography systems maker Shanghai Micro Electronics Equipment (SMEE) shows how domestic firms could progress in the local advanced lithography tools market despite US sanctions.

The “extreme ultraviolet [EUV] radiation generators and lithography equipment” patent, filed in March 2023, was published publicly on Tuesday and is still being vetted by the China National Intellectual Property Administration, according to a record from company registry website Qichacha.

The patent shows how SMEE is progressing in EUV lithography, which is considered the Achilles’ heel of the Chinese semiconductor industry. Despite years of efforts, SMEE remains behind ASML in reliably mass producing lithography gear that can be used for processes at the 28-nanometre level and below.

(“Chinese chip making shows progress with new EUV patent from domestic lithography champion”, SCMP, 12 Sep 2024)