The Chips War Heats Up

The Chips War Heats Up
A view of a lens used into the manufacturing of semiconductor circuits at ASML, a Dutch company that is currently the largest supplier in the world of semiconductor manufacturing machines via photolithography systems in Veldhoven, Netherlands, on April 17, 2018. (Emmanuel Dunand/AFP via Getty Images)
Milton Ezrati

First shots were fired last October when the United States passed the CHIPS and Science Act. It aimed directly at Beijing’s ambition to become the world’s preeminent maker of advanced computer chips. The law offers a significant subsidy for semiconductor manufacturers to establish and expand operations domestically. It also limits the ability to export advanced chips and chip-making equipment to China.

Recently, the pressure has notched up. President Joe Biden, White House spokespeople say, is on the verge of issuing an executive order that will ban all American investment in high-end Chinese technology, such as artificial intelligence (AI), quantum computing, 5G, as well as advanced semiconductors. Meanwhile, both Japan and the Netherlands have agreed to join the United States and limit chip exports to China as well as sales of chip-making equipment. These efforts will not entirely thwart Beijing’s ambitions but will make its effort more difficult.

The decision by the Netherlands is especially important. It is the only place in the world that produces cutting-edge extreme ultraviolet lithography (EUV) chip-making machines. To be sure, the Netherlands will continue to sell some of the older deep ultraviolet lithography (DUV) machines to China. Still, the decision on EUV is a major blow to Beijing’s ambitions.

Beyond simply increasing the pressure, there is something new in recent developments. In the past, most efforts to limit sales to China aimed at operations with explicit connections to the People’s Liberation Army. This latest effort is more general, though with China, it is always difficult to separate the commercial from the military.

Although all seems ready to advance, Japan and the Netherlands report that it may take months to finalize the legal arrangements needed to implement the restrictions. The firms involved have nonetheless readily pledged compliance. In Japan, Nikon and Tokyo Electron will bear most of the burden. In the Netherlands, most of the burden will fall on ASML. Its CEO, Peter Wennink, admits that some 15 percent of the firm’s sales are involved.

ASML Holding logo is seen at its headquarters in Eindhoven, Netherlands, on Jan. 23, 2019. (Eva Plevier/Reuters)
ASML Holding logo is seen at its headquarters in Eindhoven, Netherlands, on Jan. 23, 2019. (Eva Plevier/Reuters)

Of course, few expect these actions to stop Beijing’s efforts. Wennink is realistic. He agrees that the sales ban will slow China down, but he is also confident that China will eventually have the technological prowess to make the machines for itself. If past experience indicates, Beijing was preparing to do that anyway.

If Beijing will keep its ambitions despite efforts by the United States, Japan, and the Netherlands to thwart them, the actions among these others should send a more general message, one that China’s leadership ought to heed. Because Beijing has shown stark competitiveness, despite the openness of others; because it has ignored the complaints of the United States and others and insisted on pursuing unfair trade practices, including the outright theft of technology and intellectual property; because it has also pursued bullying diplomacy, especially in Asia, the United States and its allies in Europe and Asia have now entirely abandoned the open attitude that once prevailed in relations with China and in China trade.

That old approach from the rest of the world did much to accelerate Chinese development. Now that it has given way to one of competition, if not open hostility, Chinese development will bear some burdens that did not exist in the past. Beijing will have to live with what are clearly the consequences of its impatience to have everything its own way.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Before joining Vested, he served as chief market strategist and economist for Lord, Abbett & Co. He also writes frequently for City Journal and blogs regularly for Forbes. His latest book is "Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live."
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