As Trump, Xi eye truce, China-Europe chip spat sparks global auto supply chain crisis

While US President Donald Trump is hoping to resolve the ongoing trade conflict with his Chinese counterpart, Xi Jinping , European automakers are facing a new kind of crisis. A chip spat between China and Europe has triggered a supply-chain crisis that threatens auto manufacturing around the world.

This week, the famous car brand Volkswagen warned workers at its Wolfsburg plant that it would suspend the production of the Golf from next Wednesday. The car-makers argued that it was running out of some essential microchips. The announcement came after Beijing banned exports of products made by chipmaker Nexperia .

While the Chinese-owned company based in the Netherlands do not have the most advanced chips, they are responsible for keeping the brakes, lights, switches and wipers working. The ban came after the Dutch government took control of Nexperia, using for the first time a law introduced during the 1950s.

The legislation allowed the state to seize companies for national security reasons. After the acquisition, the Dutch authorities removed the Chinese owner as the chief executive. The Netherlands said that it was worried about a possible transfer of technology from the European nation to Nexperia’s Chinese parent company and “would become unavailable in an emergency”.

The Trump-Xi meeting might cause worries for Europe

It is pertinent to note that the decision from the Netherlands came a day after the United States expanded its blacklist of Chinese companies to include European subsidiaries of sanctioned firms. Dutch court documents revealed that Washington had put pressure on The Hague to remove the Chinese owner to keep Nexperia’s Dutch operations off the sanctions list.

“The fact that the company’s CEO is still the same Chinese owner is problematic,” the documents said, citing minutes of a meeting in June between the US Commerce Department and the Dutch foreign ministry. “It is almost certain the CEO will have to be replaced to qualify for the exemption from the entity list.” However, the Trump and Xi meeting in South Korea is expected to resolve certain tech issues between the two sides.

China’s attitude toward Europe has shifted since April, after Beijing learned that hardballing the US got results. Hence, many speculate that Beijing would be more rigid with Europe. Dwindling semiconductor supplies have since led Honda to suspend car production in Mexico, while EU carmakers say they are days away from a similar move.

Beijing’s ban

China’s aggressive approach towards Europe can be reflected by the fact that, soon after the Netherlands acquired Nexperia, Beijing’s response was to ban the export of microchips from Nexperia’s operations and subcontractors in China.

The ban came at a time when most car companies only had a few weeks’ supply of the chips, so factories across Europe will soon follow Wolfsburg in halting production unless the dispute is settled.

“The situation could lead to considerable production restrictions in the near future, and possibly even to production stoppages if the interruption in the supply of Nexperia chips cannot be rectified in the short term,” Hilda Mueller, head of Germany’s car industry association the VDA, said this week.

On Tuesday, China’s minister of commerce, Wang Wentao and Dutch economic affairs minister Vincent Karremans held a telephone call. During the conversation, both sides said they would seek “a solution that serves the interests of Nexperia, the European economy and the Chinese economy”. However, not just the Netherlands but the whole of Europe continue to remain in the crossfire of the US-China trade war . While the US and China attempt to mend their ways, tensions between Beijing and Europe remain.