How the largest Dutch company fell victim to the US-China trade war
American anxiety meets Dutch commerce
On January 1, Veldhoven-based tech company ASML announced that the Dutch government had revoked export licenses for two of its machines to China at the request of US President Joe Biden’s Administration.
It might seem odd that the US would push the Dutch around like this. But really the move only is the latest in a string of American interventions into the European chip trade with China.
A little background: with a $290 billion market cap, ASML is by far the largest company in the Netherlands, and Europe’s largest technology company. ASML produces wildly complex $180 million lithography machines that “print light” onto the silicon chips that go inside all kinds of electronics, from smartphones to military equipment.
ASML machines weigh 180,000 kilos, take multiple 747s to ship, and require ASML employees on site for the lifespan of the machine. No one else in the world can service them. ASML is the only company in the world that produces these machines.
The US has been making moves to restrict the sale of strategic technology like this to China since at least 2016, when the Obama administration blocked the Chinese acquisition of a part-American-owned German semiconductor company.
The idea behind these American export controls is always that China might use technology to kill us all. Or spy on us! Do bad things, in any case! As Chris Miller, the author of Chip War: The Fight for the World's Most Critical Technology told the Verge:
What you find inside the [US] national security bureaucracy, the NSC, and the intelligence agencies over the past seven or so years, is that there has been an increasing concern that China is making real advances in chip-making capabilities, just as it’s becoming clearer and clearer the ways in which advanced chip capabilities, and especially the types of chips that go into data centers, will be critical in training next-generation AI systems.
AI systems are trained in vast data centers that are full of sophisticated chips like GPUs, which are the type of chips that are used to train AI systems. If you can’t mass manufacture cutting-edge chips, then you can’t get the data center capacity that you need to train AI systems. The US is ultimately trying to accomplish stopping China from developing advanced data centers. It’s using the machine tools as the choke point, preventing US firms, and also Japanese and Dutch firms, from transferring this equipment to China.
This US approach strikes me as fundamentally absurd. What does the US expect China to do? Not develop advanced AI systems? Not use semiconductors and chips and lithography machines? Considering the massive tech industry in China that the US helped to develop?
The US started intervening in Dutch tech firms back in 2018, when bankrupt Dutch chip firm Mapper sought funding from Chinese investors. The Pentagon intervened and essentially forced ASML to buy the company. As Marc Hijink reported in the NRC last October:
The US sounded the alarm in the Hague because the Dutch government did not realize which strategic knowledge from its own country was in danger of leaking to China.
But I don’t think the Dutch government just didn’t realize what was going on. I think the Dutch government was being Dutch about chip companies, that is, simply allowing Dutch companies to do business with China as trading partners, and permitting companies to participate in the free market which the Dutch have been doing since, you know, the founding of the Dutch East India Company in 1602.
It was the Americans who barged in with American tech-business culture, where major tech firms and the government are far more intertwined than they are in the Netherlands, and decided that trade with China was a problem. The European chip war with China is America’s chip war, and the Europeans are falling in line.
In October 2022, the Biden Administration unilaterally announced “the broadest export controls issued in a decade,” a set of sweeping restrictions against selling semi-conductors and chip-making equipment to China. In January 2023, the Netherlands and Japan agreed to bar shipments of their own highest-tech equipment. But these export limitations would not take effect until January 1, 2024—in the meantime, China stockpiled ASML equipment:
Between July and November, China’s imports of lithography machines surged more than five times to $3.7 billion, according to Chinese customs data. China accounted for nearly half of ASML’s sales in the third quarter—compared with 24% in the previous quarter and 8% in the three months ending in March—as companies there rushed to import its machines before export controls take effect.
With China blocked from purchasing the technology it needs, of course it will attempt to produce the machines itself. The US strategy of blocking exports is based on the faulty logic that China won't be able to catch up. Chris Miller again in the Verge:
My best guess would be that the controls that the US and Japan are pretty clearly going to impose will be really problematic for China over the next couple of years, and potentially over the next 10 years or so in terms of making advanced semiconductors. The more countries that are on board with these controls—and that’s why the Dutch are so important—the more likely these controls are to work.
Previous export controls drove Huawei to the center of Chinese chip development, with the help of massive infusions of state cash. Huawei has hired a number of former ASML employees, and has made huge progress on other technology, including the Chinese parts-only iPhone-competitor Mate 60 Pro, and China now has a stockpile of ASML machines. ASML’s lithography machines are hypercomplex, took years and millions of dollars to develop, but it’s not like they fell from the sky. Humans made them and can remake them, even it it takes a while.
All of this reminds me of Trump's 2020 calls for a ban on TikTok (owned by a Chinese company) in the US, when even the CIA concluded that TikTok posed no security risk to the US. The Biden administration carried Trump’s torch anyway. TikTok’s CEO was hauled before the US Congress last year and berated by politicians who avoided any real issues and used the opportunity for obnoxious grandstanding. All that came of any of this was a ban on TikTok in the state of Montana (pop. 1.1m), which was ultimately revoked for being unconstitutional.
Which is to say: all of this American anxiety and diplomatic hand-waving over export controls, and for what? Setting the Chinese back a few years in the name of national security that doesn’t seem very much at risk in the first place? Of course US intelligence reports make China sound very scary, finding in 2022 that: “China was using supercomputing and artificial intelligence to develop stealth and hypersonic weapons systems, and to try to crack the U.S. government’s most encrypted messaging.”
But of course the Chinese are developing advanced AI technology. What does the US expect them to do when the US itself throws up unending economic sanctions that the Chinese have every reason and capability to evade?
Dutch (and Japanese) businesses are caught in the crossfire. Everyone’s hands are tied. ASML’s stock dropped three percent after the news broke last week—that’s billions of euros sucked out of the Dutch economy at an American request.
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