Major blow to China's plan to dominate silicon production as Netherlands curbs chip-related exports to China

The United States of America has dealt yet another major blow to China’s ambition of dominating the manufacturing of silicon chips. After TSMC announced that they will be tripling their investment in the US to the tune of $40 billion dollars, reports have now started emerging that the Netherlands is planning to impose massive curbs on its tech companies from dealing with chip fabrication plants based in China, or owned by the Chinese state.

One of TSMC’s biggest reasons to invest in the US and set up foundries and fabrication plants in the country is that the Taiwanese company was under constant threat from China. China, which already has a stronghold over the production of most electronics, has been eyeing Taiwan’s silicon chip manufacturers like TSMC and Micron for years. TSMC and Micron are two of the biggest fabricators of silicon-based chips, producing about 60 to 70 per cent of all microprocessors that are being used today.

Dutch Trade Minister Liesje Schreinemacher last month said the Netherlands was in talks with the U.S. government about new export restrictions for semiconductor equipment to China. Under pressure from the United States, the Dutch government since 2018 has not allowed the country’s largest company, semiconductor equipment maker ASML Holdings NV licences to ship its most advanced machines to China because it is believed that these machines have potential military applications.

Although most of the silicon-based chips are produced in either Taiwan, or China, the licenses of some of the core manufacturing processes are owned by Dutch corporations. Moreover, the machinery used to fabricate silicon chips are mainly produced by a handful of Dutch firms.

ASML, a key maker of manufacturing equipment for silicon-based chips, on their own had sales of over 2 billion euros or $2.1 billion to customers in China in the year 2021. According to a Bloomberg report, an agreement regarding the Dutch curbs on chip exports could come as soon as next month, adding that it is unclear what the new restrictions mean for ASML’s sales to China. China is also the Netherlands’ second-largest trade partner after Germany, according to the Dutch statistics office.

The Biden administration in early October published a sweeping set of export controls, including a measure to cut China off from certain semiconductor chips made anywhere in the world with US tools. ASML and other Dutch companies not only sources components from several US firms, but also use patented technology in making the machines that chip fabricators use.