U.S. Blocks Dutch Shipments to China – What Are They Hiding?

Expectations of Escalating Power Struggle Between U.S. and China in the New Year
U.S. Actions Indicating a Stance of Containment

Despite the U.S. and China’s leaders attempting to set a conciliatory tone for the New Year, experts anticipate an escalation in the power struggle between these two nations in the coming year. The U.S. is taking a clear stance of containment, blocking the last shipment of Dutch semiconductor lithography equipment to China and ceasing subsidies for electric vehicles using Chinese-made batteries starting this year. As the U.S. pressure on China’s global supply chain intensifies and variables such as Taiwan and the U.S. elections increase, tensions in the bilateral relationship are predicted to continue this year.

The U.S. requested the cancellation of exporting three ASML deep ultraviolet (DUV) lithography machines to China this year. Consequently, the Netherlands banned the export of semiconductor equipment to China. In response, Chinese companies started hoarding ASML equipment in the latter half last year. As a result, the proportion of ASML sales that China accounts for surged from 8% in the first quarter of last year to 46% in the third quarter.

Impact of U.S. Measures on China’s Semiconductor Industry

The semiconductor industry notes that the U.S. has blocked even the sale of the old-fashioned DUV by putting direct pressure on foreign companies. DUV is an older generation of equipment than the extreme ultraviolet (EUV) used by leading foundry companies such as TSMC and Samsung Electronics. The wavelength of EUV is 13.5 nanometers (nm), but DUV is 193 nm, making it challenging to implement ultrafine processes. The U.S.’s sensitive reaction to old equipment is due to the Huawei 7nm shock. In September last year, Huawei revealed that its Mate60 Pro smartphone features a 7nm process mobile AP, produced by the Chinese foundry SMIC using DUV technology. This announcement shocked U.S. political circles, which had believed that sanctions alone could prevent China from advancing into fine processing technologies since 2020.

The soaring demand for legacy semiconductors produced through deep ultraviolet (DUV) technology is now a major catalyst for widening sanctions. Semiconductors, vital components found in a wide array of electronic devices, do not always need to be high-performance. Notably, approximately 75% of global semiconductor sales by volume consist of older semiconductor models, a market in which China plays a prominent role.

Broad U.S. Strategy to Curb China’s Progress in AI

The United States has adopted a multifaceted approach to curbing China’s artificial intelligence (AI) progress. This strategy involves restricting the export of cutting-edge graphics processing units (GPUs) from U.S. semiconductor giants like Nvidia. Simultaneously, efforts are underway to hinder China’s advancement in older semiconductor fabrication processes. These measures reflect a broader attempt to shape the technological landscape and assert influence in the ever-evolving field of AI.

The U.S. is also pressuring China with additional sanctions in the secondary battery sector, not just semiconductors. The U.S. Department of Energy has eliminated tax deduction benefits for electric cars using Chinese parts and minerals under the Inflation Reduction Act (IRA) Foreign Concerned Organization (FEOC) regulations from this year. Consequently, the list of vehicle models qualifying for tax deductions shrank from 43 last year to 19 this year. This reduction, eliminating up to $7,500 in subsidies, will likely accelerate the auto industry’s shift away from Chinese batteries.

Geopolitical Factors Affecting Bilateral Relations

Despite the exchange of congratulatory messages between the leaders of both countries on the first day of the year, pessimistic predictions regarding the bilateral relationship persist as U.S. sanctions against China intensify. In his New Year’s address, Chinese President Xi Jinping reinforced his commitment to reuniting China and Taiwan, asserting that it is a certainty with historical significance.

Numerous variables, such as the upcoming Taiwanese presidential election on the 13th and the U.S. election in November, add further complexity to the situation. Reuters has predicted that “the three major issues of Taiwan, de-risking, and the U.S. election represent substantial obstacles to improving bilateral relations” and emphasized that “the power struggle structure remains unchanged, indicating a high likelihood of entering a turbulent period.” This suggests that the bilateral relationship may face challenges and uncertainties in the foreseeable future.

By. Min Hyuk Yoon