There’s been a fair amount of anticipatory commentary predicting that the US will rally its allies to gang-up on China in chips. As nice as that sounds (to some), we should recognize that the willingness of American allies to go along with this endeavor is directly proportional to their own economic interests. The wider the scope of such endeavors the more they impinge on allies’ economic interests so expect allies to embrace only a narrow scope for such controls.
In light of the last four years of Trump, there’s a tendency to valorize any multilateral approach as being effective. History suggests otherwise. The export control regime of the Wassenaar Arrangement since its inception in 1996 has not been binding. Moreover, the United States has rather consistently taken a stricter stance on the controls than its allies. To give a China-related example from the early years of Wassenaar, many American companies complained that they lost out in taking part in China’s 909 Project, the government-sponsored joint-venture fab–Huahong NEC, in the late 1990s because the Chinese perceived the Japanese government as taking a much more relaxed approach to export controls than the US.
Fast forward to today, EUV lithography equipment is controlled under the Wassenaar Arrangement, but that didn’t stop the Netherlands’ ASML from agreeing to sell such equipment to China’s SMIC until US pressure forced the Dutch government to put those exports on hold. And notice, the Dutch hasn’t approved nor rejected the export license for the equipment, hardly a definitive stance on blocking all EUV sales to China. Of course, this lack of a definitive answer on the license may just be a ploy to avoid angering China.
In any event, ASML sales of EUV lithography equipment are in rude health. What can’t be sold to China’s SMIC can be sold elsewhere given ASML’s large backlog of orders, which is approximately equivalent to one year’s worth of production. With Taiwan and Korea still doing what they do (i.e., investing in advanced fabrication) and the strong possibility that the US and EU will follow suit, not selling some EUV machines to SMIC really does not hurt ASML’s EUV sales any time soon.
Turning to Japan, one must acknowledge the masterful spin behind the “breaking news” that Canon is going along with banning EUV lithography sales to China. This sacrifice in the name of an alliance of techno-democracies sounds impressive. Industrial realties suggests otherwise. Given that Canon does not currently have any EUV equipment to offer and won’t have any for the foreseeable future, this sacrifice of sales of imaginary equipment is hardly a high price to pay.
Similarly, it is perfectly reasonable and sensible for the US to discuss resolving supply chain bottlenecks with American allies as highlighted in President Biden’s February 24 executive order. Indeed, talking to “productivist” East Asian allies about the need to have supply chains in their own countries rather than in China is music to their ears, especially Taiwan.
None of these moves indicate a strong willingness on the part of America’s allies to bear the burden of much stricter controls on China. Happily, thus far it does not look like the Biden administration is moving to enact wide and broad controls that affect a wide swathe of Chinese firms beyond Huawei and, to a lesser extent (sales above 10 nm are still allowed), SMIC so the strength of this alliance of the techno-democracies will probably not be pushed to the breaking point. Unhappily, rumors still abound about taking a hardline on the proposed Foundational Technologies policy regarding semiconductors. Reports along these lines seem to be jumping the gun since the policies as of now are under-specified and the personnel to enact them are not in place. As unlikely as such policies are to occur, their cost to American industry if implemented could be grave. Moreover, the benefits in terms of the ability to keep a wide array of chip technology out of China over time is questionable in large part due to the likely defection of allies. After all, any such moves to weaponize the silicon supply chain against China Inc. as a whole would likely meet resistance from allies along the lines of the resistance to America’s stricter enforcement of Wassenaar Arrangement that goes all the way back to the beginnings of those multilateral export controls.