When President Joseph Biden hosted the Dutch leader at the White House on January 17, the two leaders agreed on boosting support for Ukraine. They were less effusive on how hard to confront China. Prime Minister Rutte said that the Netherlands is considering sending a Patriot missile system to Ukraine. In contrast, Rutte reported only “gradual progress” on aligning Dutch and US chip export restrictions.

That’s diplomatic speak for disagreement. Though eager to please their American ally, the Dutch resent what they perceive as US bullying. They are reticent to forgo a key source of revenue for their biggest tech company. And they fear that the US is going too far in its crusade to isolate China.

The Biden administration has imposed strong export controls aimed at preventing China from accessing Western-made semiconductors and chipmaking equipment. But the US cannot act alone to be effective. It is pressing manufacturing powerhouses South Korea, Taiwan, Japan, and the Netherlands to follow its lead.

ASML represents a crucial link in the semiconductor supply chain. It is the world’s leader in extreme ultraviolet lithography systems, machines that draw a pattern of lines on silicon wafers essential to insert tiny transistors. The thinner the line, the smaller the resulting transistor, and the more transistors that can be put together to form a single semiconductor. ASML is the only manufacturer of machines capable of producing transistors that measure under seven nanometers.

In the past, the Dutch bent to US demands. In 2019, the Netherlands suspended ASML’s license to export its latest generation machines to China. The US now wants it to deny licenses to sell the previous generation, in use for more than a decade.

But the 2019 experience left a bitter hangover. At the time, a senior US official told Dutch diplomats that “good allies do not sell this type of equipment to China.” In a thinly disguised threat, the official warned that ASML depended on crucial US-made components and that Washington had “the authority to restrict exports of those parts to the Netherlands.”

Although Washington consulted with allies before imposing its latest semiconductor export controls, it has also threatened to retaliate against holdouts, so that equipment that contains “even the smallest amount of US technologies” couldn’t be sold to China. This “you’re with us or against us” approach angers Europeans. Belgian Prime Minister Alexander de Croo has compared US behavior to that of a bully.

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New sanctions would hurt ASML. About 15% of its sales are to China and lost sales of old equipment could amount to up to $1.9 billion. ASML CEO Peter Wennink believes that new controls would fail to provide security benefits since chips used for military applications are already available in China. “That train has left the station,” Wennick told a Dutch newspaper. He decries US hypocrisy, charging that American companies stepped in after 2019 to replace ASML sales in China.

The Dutch government seems to agree. Foreign Trade Minister Liesje Schreinemacher says that the Netherlands “does not want to copy the American measures.” Economics Minister Micky Adriaansens adds that the Netherlands “have their own economic interests” and wants the US to provide something substantial in return for new restrictions.

Europe-wide considerations play a role. Prime Minister Rutte has convened talks with the German and French governments in a first step towards agreeing on a continent-wide approach. A decision by the Netherlands to restrict exports would have a ripple effect on non-Dutch firms, starting with German companies, Zeiss and Trumpf, both of which provide crucial components for ASML lithography machines.

Within Europe, no consensus exists on which technologies should be seen as strategic, and even less on how far to go to limit China’s technological development. Many Europeans believe that the controls could backfire – encouraging China to develop its own domestic advanced chip-making capabilities. The US Semiconductor Industry Association points out that increasing US-China tech tensions are amplifying Beijing’s “desire to develop self-sufficiency in semiconductors.”

For now, though, no substitute exists for ASML. Although Chinese telecom equipment manufacturer Huawei reportedly has filed a patent for a seven-nanometer lithography system, it still lacks crucial components and know-how. “It takes a thousand steps to make a semiconductor and you’re going to have to get them all right,” says semiconductor industry expert Doug O’Laughlin.

Transatlantic negotiations will turn on defining “advanced” semiconductors. The technological frontier is fast-moving. ASML and Dutch officials argue that Washington wants to ban previous-generation tech. Washington disagrees, defining “advanced” as any technology that can benefit the Chinese military.

A deal will depend on the strength of US assurances. The US could encourage US chipmakers to make up for ASML’s potential lost Chinese sales, or make moves to deepen trade with allies. Otherwise, the battle over ASML will underline the deepening transatlantic digital divide over how to confront China.

Charles Martinet assists with research at CEPA’s Digital Innovation Initiative and is a master’s student at Sciences Po Paris, where he studies the geopolitics of technology, artificial intelligence governance, and EU tech policy.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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