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The Support of Allies – Japan and the Netherlands to Join U.S. Effort in Chip War with China

Dec 14, 2022

On October 17, 2022, Consilio wrote “Entering a new phase of decoupling as the U.S. – China trade war escalates”, in which it was stated that the U.S. will need support of its allies; meaning coordination of economic and industrial interests. Now, according to sources, Japan and the Netherlands have agreed in principle to join the U.S. in tightening controls over export of advanced chipmaking machinery to China.

In October 2022, the Biden administration launched its most aggressive restrictions aimed at crippling China’s technological advancement. However, in order for these restrictions to have a devasting affect, the U.S. needed two critical players in the industry to sign up: Japan’s Tokyo Electron Ltd and Dutch lithography specialist ASML Holding NV. It seems like the Americans got what they wanted.

The semiconductor industry has become the key area of rivalry between the U.S. and China. For Washington, Chinese progress within the industry jeopardizes U.S. military advantages. China will likely overtake U.S. military power in Asia, at least in terms of numbers of systems deployed, and the American strategy is to prevent that by denying access to computing capabilities. Beijing sees this as a strategic vulnerability as it is extremely dependent on imports from its geopolitical rivals, such as the
U.S., Japan, and Taiwan.

U.S. manufacturing orders in China are down 40%, which have been described as “an unrelenting demand collapse”, leading to Chinese factories shutting down earlier than usual ahead of the Chinese New Year. It is important to note that companies consider supply chains in terms of efficiency, whereas governments increasingly prioritize security policy. As a consequence, private actors and companies
will experience further geopolitical volatility as the trade war shows no signs of slowing down, rather, it appears to accelerate.

The trade war between the U.S. and China happens at the same time as Beijing undertakes far-reaching military modernization and North Korea pushes ahead with its nuclear program. This has put Japan on notice as it strives for a 56% increase in defense budget over five years and buying hundreds of Tomahawk cruise missiles from the U.S. – which demonstrates Tokyo’s seriousness about self-defense
as it aims to grow stronger in the face of threats from its neighbors.

In international politics, it is often more effective to operate in cooperation with others, and the U.S. just managed to acquire some support in its efforts to assemble a united front in the trade war against China. It can be expected that more states and companies will follow suit as the development of decoupling becomes riskier and more unpredictable.