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Big White Boxes

How Cutting-Edge Lithography Machines Have Become the Choke Point in US-China Relations

In the ever-evolving landscape of global technology, a seemingly unassuming device is emerging as a pivotal player in the ongoing U.S.-China technology conflict. These smooth white boxes, reminiscent in size to large cargo vans, are lithography machines. While they may not be household names, these complex machines have now taken centre stage in the geopolitical chess match between the United States and China.

The significance of these lithography machines lies in their role in printing intricate circuitry on computer chips, a critical step in semiconductor manufacturing. They are indispensable to China’s efforts to develop a robust chip-making industry. However, China lacks the technology to manufacture these machines, particularly in their most advanced forms. In response to this situation, U.S. officials recently took measures to limit China’s progress by imposing restrictions on the export of chip-making machines to China, unless companies obtain a special license from the U.S. government.

Great Ambitions, Great Setbacks

This move marks a significant setback to China’s ambitions in chip manufacturing and is an unusual display of American regulatory power. American authorities have asserted their ability to regulate equipment manufactured outside the United States, as long as it contains even a single American-made part.

Notably, this decision grants U.S. officials influence over Dutch and Japanese companies, which are leading the field in advanced chip machinery. Specifically, U.S. regulations will now restrict the export of machines employing deep ultraviolet (DUV) technology, primarily produced by the Dutch firm ASML, which holds a dominant position in the lithography market. While ASML has stated its commitment to complying with the regulations, the company has been contending with prior restrictions that prevented it from exporting more advanced lithography machines to China. This stance has led to some dissatisfaction within the company.

The strategic importance of these lithography machines cannot be understated. ASML’s technology has played a crucial role in advancing global computing power, enabling the shrinking of circuitry on chips and facilitating the creation of smaller, more powerful semiconductors. This technological edge has allowed the United States and its allies to wield leverage over China as they compete to translate technological progress into military advantages. Despite the shared concerns of European governments and the United States regarding China’s geopolitical and economic threat, there remains hesitation about limiting their own companies’ access to the thriving Chinese tech market.

The Netherlands has been at the centre of a multi-year pressure campaign by the United States, which persuaded the Dutch government in 2019 to block shipments of ASML’s cutting-edge machines to China. Following diplomatic pressure from the Biden administration, the Netherlands and Japan decided to independently restrict sales of advanced chip-making equipment to China earlier this year.

The latest export controls might not immediately cripple China’s most advanced chip-makers, as they have already stockpiled advanced machinery. However, these controls will significantly impede their ability to produce the most advanced semiconductor chips, such as seven-nanometre chips.

For now, ASML continues to enjoy robust business with China, but next year’s export controls could potentially curtail its China revenues by 10 to 15 per cent. These restrictions also mean that Chinese companies will face challenges in maintaining and servicing their lithography machines, as the Dutch firm will no longer be allowed to provide replacement parts and support. ASML is not the sole equipment supplier affected by the new restrictions. Other advanced machines, like those from U.S. companies Applied Materials and Lam Research, are also subject to the latest regulations. These developments signify the increasing intertwining of technology and geopolitics, with potentially far-reaching consequences for the global tech landscape.