The U.S.'s Tripartite Chip Alliance is a Threat to China

The Biden administration's successful effort to bring Japan and the Netherlands on board with its chip-sector export restrictions to China is a victory for U.S. diplomacy. But sustaining the strategy will require serious work. The administration will need to continue to engage with key allies and partners to ensure that the restrictions remain in place and are effective in curbing China's chip-sector ambitions.
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Japan and the Netherlands have agreed to join the United States in limiting exports of advanced chip-manufacturing equipment to China. The three countries dominate the manufacturing of equipment for advanced semiconductors, so the plan could make it even harder for China to develop its own chip industry.
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Japan and the Netherlands are particularly dominant in a manufacturing process called lithography. This process uses light to print tiny circuits on silicon wafers. Dutch manufacturer ASML essentially monopolizes the production of equipment needed for the process called extreme ultraviolet lithography, or EUV. This type of lithography is used to make the most cutting-edge chips. ASML has already stopped shipping EUV machines to China.
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The Biden administration's expansion of chip-related restrictions on China in October may require additional restrictions on older Dutch and Japanese technologies to be effective, and to avoid forcing U.S. companies to bear the brunt of the impact alone. Japan's Nikon competes with ASML in supplying parts for a technological process called deep ultraviolet lithography, or DUV, which is one step less advanced than EUV. Friday's agreement is likely to restrict Japanese and Dutch companies from shipping at least some models of DUV machines.
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The lack of information from the Dutch and Japanese governments about the specifics of the deal is telling. It is likely that the two countries are concerned about potential negative reactions from China, which has been a major customer for chipmaking tools. Although ASML has not shipped its $150 million EUV machines to China, around 14% of the company's system sales in 2022 came from the country. There may also be some disagreements with the U.S. about the extent of the restrictions.
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The initial effect of the U.S. chip sanctions on China is likely to be limited. However, it could seriously complicate efforts to build new facilities near the cutting edge, and might also pose a challenge for servicing some existing parts. This is notable, especially as Europe and the U.S. are embroiled in a separate dispute over the Biden’s administration’s green technology subsidies.
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There could be more levers to pull if the U.S. and its allies agree to step up their restrictions on China. Some analysts think the current curbs may not go far enough.

Blocking the shipment of new tools to China won’t be sufficient because the country can still use its existing machines, said SemiAnalysis’s chief analyst Dylan Patel in a newsletter. He suggests limiting shipments of photoresist, a light-sensitive material used in lithography, for example. Japanese companies are leaders in manufacturing the material. Japan’s Tokyo Electron is dominant in making equipment that coat and develop photoresist on silicon wafers.
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The United States is wise to ask its allies for help instead of fighting a unilateral technology Cold War with China. These latest restrictions won’t completely hamstring China’s chip industry, but they send a strong signal of allied unity, and could even presage further measures to come. For Beijing and China’s chip aspirants, that may be the most worrying aspect of this latest salvo.