It feels obvious: do everything you can to limit the growth of an emerging world power that is getting stronger economically, militarily, and politically. So speak disgracefully about its strategic goals, reject its domestic politics, impose trade restrictions, and take your own world orientation as the only viable one. Against that background, the decision to impose an export ban on ASML to China for many of the chip machines produced in Veldhoven is quite understandable. Or is it?
With the measure, which comes after months of mounting pressure from the United States, the Dutch cabinet wants to prevent sensitive technology from getting into Chinese hands. The U.S. claims China wants to use the technology for artificial intelligence, advanced weapons, and mass surveillance. The Netherlands, especially thanks to ASML and the supply chain around it, plays an important role worldwide in this value chain. So again: it makes sense to consider the desirability of an export freeze. But those who look closely at the measures cannot help but conclude that the steps are short-sighted, hypocritical, and counterproductive. They also expose Europe’s weakness.
Some 15 percent of ASML’s sales come from China. Still, the effect on the company itself will remain manageable. Not only because some trade will remain (for example, because of maintenance work and machines that can still be sold) but also because there is a waiting list of buyers. What can’t go to China goes just as easily to South Korea or Taiwan. Still, ASML chief Peter Wennink showed himself very unhappy with the measure. Chinese chips account for between 15 and 25 percent of global production, he said at the presentation of the annual results last month. “With the chip shortages we’re already seeing, that’s going to affect all of us,” he said.
Wennink rightly sees consequences for the global economy. While there are attempts to bring chip production to Europe, it will take years to build those factories. Wennink sees “a five-year gap” to cash in on Chinese chip production in Europe. So with the export ban, we could be shooting ourselves in our own feet.
The recent extension of the export ban on ASML only came about because of enormous pressure from the US. That the Netherlands agreed to it is hypocritical for three reasons.
First, China still has plenty of room to continue building military equipment. Most of the chip technology used for military purposes comes from machines of a previous generation. These may still be sold to China. But there is more: a big difference between selling chip machines (banned!) and the chips themselves (allowed!). Believe it or not, the most advanced chips made with banned machines can still be sold to Chinese companies. They then come from Taiwan or even the U.S. The U.S. market authorities have no problem with that.
Indeed, and this is the second element of hypocrisy, it is precisely American companies that benefit from the measure. After all, their advanced deposition and etching machines can ensure that Chinese chip makers remain able to make smaller and more powerful chips despite ASML’s absent super machines. This is because fineness also depends on the process of deposition (the application of light-sensitive layers) and the de-etching of material, Wennink said recently in NRC. “By repeating those steps (multi-patterning), you can still produce finer-grained chips. That’s how Chinese chip manufacturer SMIC managed to push the limits of DUV technology: with more deposition and etching machines. That explains why American equipment suppliers get up to a third of their sales from China.”
The third element of hypocrisy concerns Europe’s much-desired “strategic autonomy.” Our dependence on Russian gas or Arab oil has placed us in undesirable positions. But strategic autonomy also means not wanting to be on the leash of a country like the United States. It means that Europe (or the Netherlands) should be able to develop its own policy toward China, whether or not it fits the wishes of the U.S. Trading one dependency for another is not a sign of autonomy.
Besides the disadvantages already mentioned for global chip production and the development of ASML as a company, the export ban has two other consequences that make the decision undesirable. It puts the already sensitive relationship with China to the test, and it will give that country additional motivation to work even harder on developing its own technology. To put it mildly: the (major) disadvantages do not outweigh the (limited) advantages – especially when you know the latter will only prove sustainable for a limited time.
Because if we, even from eight thousand kilometers away, have come to see one aspect of China very clearly, it must be its immense research and development power. Nowhere more universities, nowhere more engineering graduates, nowhere more government money pumped into technology. Combine that with its great ability to copy (ASML knows all about it), and you know this country won’t leave any moment unused.
So even if it is true that ASML is ten years ahead of the competition, we have to expect that China will come up with solutions much faster, possibly in ways we haven’t thought of yet. The result will not necessarily be a copy of what is currently being produced in Veldhoven but a system capable of much more than we would like to see now.
Short-sighted, hypocritical, and counterproductive, that’s what it is. And if there are any positive effects, they are short-term at best. Why has it come to this? Because the European strategic autonomy, so fervently propagated, is still a sham. Because we fear losing the U.S. if yet another European country is compromised. Because Washington and not Brussels or The Hague determines the line of march. The export ban on ASML proves that a position on the world stage on the same level as China and the United States is not yet reserved for Europe.