Bloomberg News reported on Monday that Japan and the Netherlands have agreed in principle to join the US in tightening controls over the export of advanced chip-making machinery to China.
In response China launched a suit at the World Trade Organization over the US measures. The complaint is unlikely to go anywhere since Washington has blocked appointments to the WTO’s top ruling body on trade disputes.
In October the Biden administration initiated a series of curbs aimed at cutting China off from chip-making technology and advanced chips. The administration attempted to persuade allies, such as the European Union, Japan and South Korea, to join the controls, but all initially declined.
Getting Japan and the Netherlands on board will be celebrated in Washington as Japan’s Tokyo Electron Ltd and Dutch lithography specialist ASML Holding NV are two key players in the chips market. Five companies control the market for chip-making machines — three in the US, one in the Netherlands, and one in Japan. Taiwan has also signaled its chip firms will follow the US rules.
The US had granted one-year waivers to the chip companies, but kept up the pressure with the looming threat of facing some sort of export control. Washington now must convince/coerce South Korea to end their advanced chip business with China. From the Japan Times:
“The memory chip industry could be the most affected in the long-term, with the risk of collateral damage to firms based in US partner countries,” wrote the Rhodium Group, noting that South Korean chipmakers SK Hynix and Samsung, now at the mercy of U.S. licensing decisions, are likely to face “significant costs linked to the restructuring of their supply chains.”
Both companies, along with the Taiwan Semiconductor Manufacturing Company — the world’s largest chipmaker — have obtained a one-year waiver but are under growing pressure to find a solution, with SK Hynix recently announcing that it might be forced to sell its manufacturing operations in China should American export controls intensify.
Japan doesn’t have facilities in China that face such restrictions, nor do they sell advanced chips to China. But Japan’s chip equipment- and material-makers could be hit hard as its global players are concentrated in those areas, and exports of semiconductor manufacturing equipment to China have grown in recent years. From the Japan Times:
“There is still some uncertainty over how the restrictions would work, but if we interpret them straightforwardly, the damage to Japan’s chip industry would be massive,” said Akihiro Morishige, a researcher at the Mitsubishi Research Institute. …
Last year, the value of such exports hit a record ¥3.3 trillion ($23.67 billion at current exchange rates), and China accounted for the largest share, at about 39%. This year, the January-September figure alone has already topped ¥3 trillion.
Should South Korea join the restrictions, its chip industry would be hammered. In addition to Samsung’s NAND plant in Xi’an and SK Hynix’s DRAM plant in Wuxi, South Korea sells 60 percent of its semiconductor products to China. In 2021, that was $523 billion worth of sales, which accounted for nearly 40 percent of South Korea’s semiconductor exports. South Korean chip manufacturers heavily rely on Chinese components and cutting them off from such a valuable market could have dire economic impacts.
There are signs US pressure on South Korea is beginning to work. SK Hynix’s chief marketing officer Kevin Noh said last month that the company might be forced to sell its manufacturing operations in China. From the AP:
“If it becomes a situation where we would have to obtain (U.S.) license on a tool-by-tool basis, that will disrupt the supply of equipment … and we could face difficulties in operating (Chinese) fabrication facilities at a much earlier point than the late 2020s.
If we face problems that make it difficult for us to operate our Chinese fabrication facilities including the Wuxi plant, we are considering various scenarios, including selling those fabrication facilities or their equipment or bringing them to South Korea.”
Beijing has threatened retaliation should South Korea join the US in its economic war efforts. China could hit back by restricting rare earth exports to countries imposing restrictions as most of the world’s rare earth processing takes place in China. Japan, the EU, and the US have been working to establish their own rare earth supplies and processing, but those efforts are still a ways away. As the Japan Times explains:
However, a quick fix is unlikely, particularly given the high level of dependence of some countries, including the U.S., and the limited investments made so far in diversifying the sources.
“At present, there is no ‘going around’ China when talking about commercial scale operations consuming rare earths,” said Daan de Jonge, a consultant at London-based commodity research company CRU.
“China has the most significant share of processing capacity at every step of the rare earths supply chain, so it is likely that the vast majority of rare earth magnets will have gone through China, or at least relied on China at some point,” he added, pointing out that this includes magnets for electric vehicles as much as those used in military and defense applications.
“Even if a non-China mine produces an ore, separates their own NdPr (neodymium and praseodymium), and sells that to a Japanese magnet maker, they will still have to import dysprosium from China for high temperature applications.”
If China wants to play hardball, it would be devastating for Japan. Nikkei Asia reports:
If 80% of Japan’s imports from China — about 1.4 trillion yen ($9.4 billion) worth, including raw materials and parts — were disrupted for two months, Japan would not be able to produce a wide range of products, including home appliances, cars, resins, clothing and food products. About 53 trillion yen ($360 billion) worth of production would disappear, according to estimates by professor Yasuyuki Todo and his colleagues at Waseda University … Product prices would also increase. According to Owls Consulting Group, a Tokyo-based supply chain research firm, if 80 major products, including home appliances and cars, were to stop imports from China and switch to domestic production or procurement from other regions, costs would increase by 13.7 trillion yen annually. That is 70% of the total net income of manufacturing companies listed on the Prime Market of the Tokyo Stock Exchange.
ASML Holdings had sales to customers in China of more than $2.1 billion last year, but the company hasn’t been selling its most advanced machines to China for the past four years due to US pressure. The Dutch government had already restricted advanced equipment that is considered “dual use” with potential military applications. Bloomberg reported that the Netherlands will also restrict exports of its immersion lithography machines, its second-most advanced gear.
China is the Netherlands’ third-largest trade partner after Germany and Belgium, and Fu Liang, an independent tech analyst, told the Global Times:
“As a further ban on its chip-making equipment exports to China would cripple the Netherlands’ semiconductor industry and the interest of ASML, the country has tried its best to withstand pressure from the US.”
The Dutch foreign trade minister had recently been talking tough about not caving to US pressure, telling a Netherlands-based newspaper that, “The Netherlands will not copy the American measures one-to-one, We make our assessment — and we do this in consultation with partner countries.”
French President Emmanuel Macron went to Washington at the end of November, apparently pushing a deal that would see the EU get tougher on China in return for the US backing down on measures in the Inflation Reduction Act (IRA), which provides $369 billion worth of subsidies and tax breaks at a time European industry is being killed by higher energy prices due to the NATO proxy war against Russia in Ukraine.
Ahead of his visit a French diplomat told Reuters the French president will argue the following:
The pitch will be: there’s obviously a Chinese challenge and we can help get others in the EU out of their naivete on this. But you can’t ask us to help on China and do an IRA on us.
Biden admitted that there were “glitches” in the IRA, but the chances of Congress amending the law are next to nothing. Additionally, a recent meeting of the US-EU Trade and Technology Council concluded without any concessions from Washington. Meanwhile, South Korea, also upset with the US over the IRA, is calling for cooperation with the EU against the US subsidy bill.
It’s all a lot of effort from Washington to cut China off from technology it could gain the capabilities to produce in as little as a few years, but the message is being received in Beijing. From the Global Times:
To be honest, Washington does not have a good credibility. We pay more attention to what it does than what it says. Just in the past few days, while Washington announced that it would “continue responsibly managing the competition between the two countries and to explore potential areas of cooperation,” it continued to challenge China’s core interests in areas such as the Taiwan question, supply chain restructuring, military affairs and human rights. The actions to suppress, siege and contain China have never stopped. This makes Washington purely “two-faced.” In the past few years when China-US relations have declined sharply, Washington has been talking about “managing” divergences while constantly creating new differences.
One estimate showed that the countries imposing the chip bans will suffer more than China.
Trade war on steroids anyone?
“One estimate showed that the countries imposing the bans will suffer more than China.”
And just like that the starting gun goes off on a race to the bottom for these countries. With a friend like Washington, who needs enemies.
America.. Land of free markets and advancing technology to the benefit of freedom, democracy and domestic tranquility.
Land of rentiers, advancing military technology, to the benefit of the rich, authoritarians and domestic unrest.
Why are the elected (not all) pushing fear, restricting information believing a narrative that Americans can’t be trusted with information to make an informed choice and that we need the huge military cause are politics is one of paranoia and fear???
Thomas Jefferson said “If a nation expects to be ignorant and free, it expects what never was and never will be … The People cannot be safe without information. When the press is free, and every man is able to read, all is safe.”
“A highwayman is as much a robber when he plunders in a gang as when single; and a nation that makes an unjust war is only a great gang.” -Benjamin Franklin
“It is a universal truth that the loss of liberty at home is to be charged to the provisions against danger, real or pretended, from abroad.” -James Madison
As Doc Hudson has so astutely pointed out, Washington has succeeded in having the EU deliberately de-industrialize themselves in the good fight against Russia. And not only has this removed the EU ever being a competitor in trade with the US but to add insult to injury, a lot of those European firms are now moving to the US itself. As additional bonuses, not only is the EU now in lockstep with Washington’s foreign policy decrees but the European militaries will now have to re-arm their depleted military stocks – by buying American weaponry. How sweet is that for Washington?
So the question is whether Washington will attempt to use the same playbook in the Pacific by having countries like Japan, South Korea and Taiwan cripple some of their own major industries in the good fight against China. Being solid economies they are competitors to the US so the question is whether they will be stupid enough to fall for it or not. In the long run these sort of sanctions will only make China stronger as has happened with the attacks on Russia but those Asian countries had better watch their backs. It may be that if China counter-sanctions Japan and other countries by restricting rare earth exports, I think that Washington would see that as a win.
Washington’s policy seems to have been taken from the Highlander – ‘There can be only one!’
Indeed sounds like the same playbook. Maybe I’m missing something but.. what’s in it for Japan and South Korea? Why would they pull the trigger on this? And isn’t China a larger trade partner for Japan than the US?
What was in it for Germany and the rest of the EU? I’m still trying to work that one out. It’s nuts.
Japan, S Korea and Germany still being occupied by the US military might have something to do with it.
Poor China! A small nation bereft of natural resources and materials scientists to exploit them.
‘If China wants to play hardball’
I don’t see why they would do otherwise. That is the game being played by their ‘opponent’. This will not end well for anyone.
bill clinton actually thought free market economics was going to rule the world. what a dim wit!
Lenin must be smiling. the chinese communist party heirarchy must wake up every morning to see a picture of bill clinton, and start the day off with a tremendous belly laugh!
“The complaint is unlikely to go anywhere since Washington has blocked appointments to the WTO’s top ruling body on trade disputes.”
My understanding was that Biden regime has appointed those bodies at WTO. There was recently a ruling on the US imposed tariffs on steel and aluminum which the US lost, and as expected, US dismissed. Global Times had an article about that.
Alastair Crooke has an article about the self immolation of Europe: https://strategic-culture.org/news/2022/12/12/us-cuckoo-in-european-nest/
“For Europe, its unreflective taking of this American ‘cuckoo’ thinking into its own European nest is nothing short of catastrophic.”
Stupid is as stupid does. The only result from this will be that within a couple of years, China will design, produce and manufacture it’s own advanced++ chips and machinery, which will in turn result in them taking over the cutting edge of these fields and out designing and out producing the rest of the world. They already do this for 5nm chips. They may then limit the sale of advanced military use chips to the US. This would be a very good thing.
I get Netherlands as it basically is up shit creek come any serious conflict.
But japan is still an industrial powerhouse even with its aging population, it should be fully capable of doing its own thing. Except that interests align between USA and Japan right now, as Japan has border disputes with both Russia in the north and China in the south.
Without her nuclear reactors though, Japan is entirely dependent on foreign oil. Also with an aging population, can Japan really afford to send off its young people to die in some war?