Chip Industry – Who Uses Geopolitics?

Technological leadership in the West and export restrictions: German companies are also affected by the attempt to economically isolate China. Firms affected by “decoupling” are surprisingly obedient. Why?

When it comes to semiconductors, government officials are becoming critics of globalization. The US government wants to isolate China politically and economically and build its own production capacity. This benefits some companies while others lose their business model.

The US government wants to make the country independent of China. In no other area is efforts to achieve “decoupling” (separation) as clearly and unambiguously as it is for high-tech, especially in the (alleged) future fields of battery technology and high-performance chips.

Reports of relevant trade restrictions now come out almost every week. The youngest fears Nvidia, the market leader in graphics cards. In early September, the US authorities banned the export of crisps to China. The company can no longer ship $ 400 million of goods on order.

The rationale behind the decision is that the agreement poses a threat to US national security as it may be used “by military end users”. But separation from China is not only about military development, even above all. In the final report of the National Security Committee in Artificial Intelligence (NSCAI) of 2021, we read:

America’s technological domination – the backbone of its economic and military power – is under threat for the first time since World War II. China has the power, talent and ambition to overtake the United States as a global leader in artificial intelligence in the coming decade.

The Commission did not only deal with artificial intelligence in the narrow sense (“machine learning” etc.). Advanced computer technology is important both militarily and economically, it symbolizes technological leadership.

The advisory panel called on the US to “provide a two-generation lead over China in cutting-edge microelectronics and recognize various vendors as the country’s most advanced microelectronics.” To this end, the commission instructed the government to defend its technological advantage with trade restrictions:

The United States and its allies should implement targeted export controls high class-Use semiconductor manufacturing equipment to secure existing technical advantages and slow the progress of the Chinese semiconductor industry.

The US is currently implementing this strategy. In July, the Ministry of Commerce informed chip companies that future exports to China would be banned. These include chip designers such as Rhythm and summarychip design software developer Mentor Graphics and plant builders Sheep research, KLA and Materials used.

A recently passed law promoting the domestic semiconductor industry, “Act on tokens”promises companies high subsidies, but at the same time obliges the recipient not to open any new factories in China, not to modernize existing production plants and not to increase production capacity there.

The state-imposed separation also extends to science: around $ 200 billion will be allocated to research in robotics, semiconductors and computer science. In return, universities must undertake not to maintain any relationship with Chinese academics and universities.

Are your allies going with you?

Companies in allied countries should also stop exporting. During his visit to the Netherlands in May, a Biden administration sales representative expressed his desire to tighten existing export restrictions.

This is aimed at the company ASML, the only producer of the latest generation of semiconductor lithography. It uses extremely short wavelengths from 5 to 124 nanometers (extreme ultraviolet light, EUV) to produce the tiny structures of high-performance chips. As this technology is also used for military purposes (dual use), the export restrictions apply according to the Wassenaar list.

The current controversy ASML does not refer to the latest generation, but to the previous one: photolithography in the range from 193 to 248 nanometers, (deep ultraviolet, DUV). The background is fears that the Chinese could also produce high-performance chips using DUV technology.

Adequate machines were allowed ASML so far they have been selling to China, and business with DUV systems is much more important than with EUV technology. Loud Bloomberg in 2021, almost 15 percent ASML-Sale from Chinese customers.

The offensive actions of the Americans put the Dutch government in a difficult and somewhat embarrassing situation. He cannot seem to be just the executor of orders, but he cannot deny the wishes of his main ally either.

The case affects the sovereignty of the country and, at the same time, affects the interests of the technological and economic leader and may constitute a precedent. In July, Foreign Minister Wopke Hoekstra said with maximum ambiguity:

All I can say about it: It always makes sense to consult your friends when certain commodities have strategic importance and implications around the world.

The attempt to isolate China economically also affects German companies such as The trump card and zeissstrategic partners ASML. Also the ones mentioned Mentor Graphics are owned by Siemens.

However, the companies concerned are surprisingly obedient or at least avoid public dispute, despite losing significant market share in some cases. Geopolitics triumphs over commercial interests – or is it so?

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