Globally critical chip firm drives rift between US and Netherlands over China tech policy

Washington has its sights set on the Netherlands, a small but important European country that could hold the key to China’s future in advanced semiconductor manufacturing.

The Netherlands has a population of just over 17 million, but is also home to ASML, a star in the global semiconductor supply chain. It produces a high-tech chip-making machine that China wants access to.

The United States appears to have persuaded the Netherlands to halt shipments to China for the time being, but relations appear rocky as the Dutch assess their economic prospects if cut off from the world’s second-largest economy.

ASML, headquartered in the city of Veldhoven, does not manufacture chips. Instead, it makes and sells extreme ultraviolet (EUV) lithography machines for $200 million to semiconductor makers like Taiwan’s TSMC.

These machines are needed to manufacture the most advanced chips in the world, and ASML has a de facto monopoly on them, as it is the only company in the world to manufacture them.

This makes ASML one of the largest chip companies in the world.

US pressure on the Netherlands appears to have started in 2018 under former President Donald Trump’s administration. According to a 2020 Reuters report, the Dutch government withdrew ASML’s license to export its EUV machines to China after intensive lobbying by the US government.

Under Trump, the United States has started a trade war with China that has escalated into a battle for tech supremacy, with Washington attempting to cut off critical tech supplies to Chinese companies.

Huawei, China’s telecommunications powerhouse, has faced export restrictions that deprived it of the chips it needed to make smartphones and other products, crippling its mobile business. Trump also used an export blacklist to cut off China’s biggest chipmaker, minimum wageof the American technology sector.

President Joe Biden’s administration has taken the assault on China’s chip industry one step further.

In October, the US Department of Commerce’s Bureau of Industry and Security introduced sweeping rules requiring companies to apply for a license if they want to sell certain advanced computer semiconductors or related manufacturing equipment to China.

ASML told its US staff to stop serving Chinese customers after the rules were introduced.

Pressure on the Netherlands to comply with US rules continues. Alan Estevez, Commerce Undersecretary for Industry and Security at the U.S. Department of Commerce, and Tarun Chhabra, Senior Director of Technology and National Security at the U.S. National Security Council, reportedly spoke with Dutch officials this month.

“Now that the US government has implemented unilateral end-use controls on US companies, these controls would be futile from their perspective if China could obtain these machines from ASML or Tokyo Electron (Japan),” said Pranay Kotasthane, president of high-tech. geopolitics program at the Takshashila Institution, CNBC told CNBC.

“Therefore, the US government would like to convert these unilateral controls into multilateral controls by involving countries such as the Netherlands, South Korea and Japan.”

The National Security Council declined to comment when contacted by CNBC, while the Commerce Department did not respond to a request for comment.

A spokesman for the Dutch foreign ministry said it did not comment on visits by officials. The department did not respond to additional questions from CNBC.

Last week, US Secretary of State Antony Blinken hailed “the growing convergence in the approach to the challenges posed by China”, particularly with the European Union.

But the picture for the Netherlands does not appear so rosy.

“Obviously we weigh our own interests, our national security interest is of the utmost importance, we obviously have economic interests as you can understand and the geopolitical factor always plays a role as well,” said Liesje Schreinemacher, Minister for Foreign Trade and Development Cooperation of the Netherlands, said last week.

She added that Beijing is “an important trading partner”.

— CNBC’s Silvia Amaro contributed to this report