Earlier last week, the United States allowed the sale of Nvidia’s H-200 chip, which is six times more powerful than the U.S.-made chips currently used by Chinese firms, to China, under the condition that Nvidia will turn 25% sales revenue of H-200 to the U.S. government and that Nvidia will sell at least 50% of its products to the United States. It has been reported that China has issued a customs ban on the import for H-200. Also, late last December, a Reuters report stated that a lab in Shenzhen has successfully created an operational prototype of EUV machine used for cutting-edge chip manufacturing, beating the projected time frame by at least five years.
These recent updates also create an awkward dilemma for Europe: should Europe still maintain its export control of semiconductor technologies to China?
To begin with, European firms were caught in the crossfire between the United States and China since 2022, when the Biden administration, through extraterritorial export control mechanisms, successfully pressured the Dutch company ASML—later the Dutch government—to ban sales of advanced machine tools for semiconductor manufacture to China. ASML is currently the most crucial European actor in the global semiconductor game accounting for almost 100% global production of the EUV machines used to make the most advanced chips. Since 2022, the percentage of sales to China in ASML’s overall sales has dropped from nearly 50% to 25%, which remains a significant portion.
At the European Union level, export control of semiconductor technologies is primarily sanctioned through the Dual-Use Export Control regime established in 2021, most recently updated in September last year, in accordance with the Wassenaar Agreement.
The fundamental difference between the United States’ export control regime for semiconductor technologies and that of European states/the EU is that the U.S. export control regime is structural and extraterritorial, with low or no de minimis level, rather than a list-based control adopted by Europe. This means that the U.S. export control by default covers almost all parts of the semiconductor value chain, while the European export control only covers items on specific lists, which are updated at varying paces.
This difference in approach reflects the underlying divergence of priorities across the pond. The priority for Europe, indicated by the EU Chip Act and the ongoing debates on updating that legislation, is its own supply chain resilience and digital sovereignty, in contrast to the U.S. priority of containing China’s development of its AI capacities.
Now the issue for Europe becomes should Europe keep the export control on semiconductor technologies to China, when the original initiator of that control has already folded? Maintaining that export control means continuing to lose a significant amount of revenue for European firms in the sector, a loss that is likely to be permanent.
Moreover, if Europe does aim to keep the export controls, will a list-based approach be enough for effective containment, as China has shown steady and faster-than-expected progress in certain semiconductor technologies that have been traditionally dominated by European firms like ASML and ZEISS AG?
In short, Europe needs to make a decision and to make it fast. If the priority for Europe remains supply chain resilience and sovereignty, then the current level of export control shall be reconsidered. Given the current Dutch-led debate of an updated version of the EU Chip Act, it seems that Brussels has not made up its mind on how, if at all, Europe should adjust its strategic priority regarding the semiconductor sector.
Sources: Reuters; Financial Times; CNBC; U.S. Government Publishing Office. Electronic Code of Federal Regulations; ASML Press Release; Yahoo Finance; Official Journal of the European Union; European Commission; European Semiconductor Industry Association.
