The U.S. government pushes the Netherlands, Japan, Germany, and South Korea to extend existing chip-making export bans, but faces resistance

Washington is in talks with the Netherlands and Japan to tighten restrictions on the export of advanced chips and chip-making equipment and materials to China. It is also seeking to bring in Germany and South Korea. However, it is facing resistance from its semiconductor allies, which fear extended controls could harm their own semiconductor industries.

The U.S. government has asked its ‘semiconductor allies’ – the Netherlands, Germany, South Korea, and Japan – to further tighten restrictions on China’s access to chip technology by expanding the scope of existing U.S. measures introduced in 2022. Washington wants to close some loopholes by including the servicing of existing Chinese equipment bought from Europe and banning the supply of raw materials and optical components.

Pressure from Washington last year saw the Netherlands and Japan – both of which have significant influence in the global semiconductor supply chain – join the U.S. in banning the export of advanced chips and chip-making equipment to China. However, the new demands are meeting some resistance.

ASML pressured by Washington to stop servicing and repairing existing lithography machines in China

Veldhoven-headquartered company Advanced Semiconductor Materials Lithography (ASML) Holdings is arguably the most important semiconductor firm globally, holding near-total dominance in the production of advanced photolithography machines (which are used to ‘print’ semiconductor wafers). ASML also has two production plants in Taiwan and is the sole supplier of EUV tools to Taiwanese manufacturers, which use them to produce advanced 3nm and 5nm chips

On 8 March 2023, ASML and the Netherlands joined the U.S. in restricting the export of advanced deep ultraviolet (DUV) lithography machines, and placing a total ban on the supply of extreme ultraviolet lithography (EUV) technologies, which are used to make advanced chips, such as those used in Artificial Intelligence (AI). (For more information, read our in-depth Market Snapshot by clicking here.)

However, there remain loopholes around the servicing of existing ASML-produced chip printing machines in China. In the latest round of suggested measures, the U.S. has asked the Netherlands to stop servicing and repairing sensitive chip-printing machines purchased before the introduction of the measures. However, ASML is understandably reticent as it means that it would be breaking its contractual obligations to appease Washington.

The Netherlands has also sought talks with other European Union (EU) countries, which did not join the original curbs, as it wants to create a more structured EU strategy towards Chinese technology exports and felt alienated by its lone stance in the EU on the export ban.

Japan is re-building its chip industry and is reluctant to exclude the Chinese market

Japan, meanwhile, was ranked by the United Nations as the largest supplier of semiconductor equipment to China in 2022, accounting for around one-third of Chinese imports of chip-making equipment since 2015. After pressure from Washington, in 2023 it restricted exports of 23 types of chip-making equipment, although it did not explicitly mention China as the intended target.

The U.S. is now pushing Japan to also limit exports to China of specialized chemicals, such as photoresist materials – light-sensitive materials used in photolithography and photoengraving to form a patterned coating on the surface of a chip wafer. Japan is home to chip equipment makers such as Tokyo Electron, Advantest, Nikon, and Canon (renowned for their expertise in optical technologies).

However, in an interview with Nikkei Asia on 9 March 2024, Japan’s Economy, Trade and Industry Minister Ken Saito stated that Japan currently has no plans to extend existing curbs and was “taken aback” by the pressure from Washington. Japan’s chip industry is concerned about the lack of a significant domestic market for semiconductors. At the same time, the Japanese government is keen to regain Japan’s once-held significant global foothold in the semiconductor market and, in November 2023, announced that it would spend $13 billion to boost its chip sector.

For example, in January 2024, Canon announced that it aims to start shipping its new nanoimprint lithography machines – which “stamp” chip designs onto silicon wafers instead of etching them with UV light, making it a significantly simpler and cheaper process – by the end of 2024. These machines are said to cut energy requirements by 90% and could potentially rival ASML. Hence, Japan is reluctant to risk the advances it has made in recent years by excluding the Chinese market.

The U.S. holds talks with Germany and South Korea over chip-making equipment

The U.S. also wants to draw in Germany and South Korea to the touted additional measures. Germany’s specialist glass manufacturer Carl Zeiss supplies the optical components required for advanced chip production, and the U.S. has asked that it stops shipping these components to China. German Chancellor Olaf Scholz plans to visit China this month, and it has yet to announce Germany’s stance on the issue.

The U.S. has also held talks with South Korea, another significant producer of less advanced chips, as well as a supplier of spare parts for chip-making machines. In February 2024, the U.S. Department of Commerce and the South Korean Ministry of Trade, Industry, and Energy reportedly held negotiations on this issue. The U.S. has expressed concern that South Korea could become a loophole in its export controls on semiconductor technology to China.

Although the South Korean government has not yet made a decision, it has stated that it is at least “partially” inclined to meet U.S. demands in order to stay on good terms with Washington. However, like Japan, South Korea is concerned that further measures would adversely affect the competitiveness of its semiconductor industry, which is focused on producing less advanced chips for the global market.

These additional U.S. moves come after it was caught by surprise by Huawei’s launch, in August 2023, of a new Kirin 9000s chip – a 14nm chip engineered by Huawei down to 7nm – in its Mate60 Pro phone. The chip is believed to have been manufactured by partially state-owned Chinese chip maker Semiconductor Manufacturing International Corporation (SMIC) using an N+2 process via DUV lithography. 

Huawei surprises Washington with the launch of advanced chips in 2023

Then, in December, Huawei unveiled its Qingyun L540 laptop, which uses a 5nm Kirin chip called 9006C, which is manufactured by Taiwan Semiconductor Manufacturing Company (TSMC). The technology is seen by Washington as at least a generation ahead of where it believed Huawei and SMIC should be due to the original export measures. However, industry observers believe that the 9006C chips derive from inventory delivered before exports from TSMC to China were banned in mid-September 2020.

At the same time, the U.S. is looking to bring the entire chip manufacturing supply chain ‘in-house’ – between the U.S., Japan, South Korea, and Taiwan – under the so-called “Chip 4 Alliance”. The U.S. wants to co-opt every aspect of chip manufacturing, including R&D, design, manufacturing, packaging, sales, and consumption, between the four nations and would only use external parties under strictly controlled circumstances. The combined Chip 4 Alliance accounts for over 80% of the global semiconductor market.

It's clear that Washington has its work cut-out convincing its chip-making allies to extend further measures against Beijing, which could harm their own semiconductor sectors. Beijing has enough resources to manufacture advanced chips on less-sophisticated machinery at a loss, which is raising concerns in Washington and underscoring the U.S. challenge of treading a careful line between restricting China’s semiconductor industry and alienating the four nations it is trying to pressure.