Netherlands lands in crossfire in US-China trade war

A Dutch semiconductor company has become the focus of international attention after the United States put pressure on The Hague to halt exports of machines to China. Like many European countries, the Netherlands is struggling to find a balance between commercial commitments and ideological distance from Beijing.

Dutch company ASML has quietly become the world's largest supplier of machines to manufacture semiconductors, which power everything from our phones and computers to coffee machines. AFP - Emmanuel Dunand

“Some politicians and the media are holding magnifying glasses all day searching China’s blemish, fabricate and spread different kinds of lies, attack the political system of China, and incite hatred and discrimination against the Chinese people,” writes Chinese ambassador to the Netherlands Xu Hong in an “Open Letter to the Dutch Friends” on the embassy’s website.

The letter is an apparent reaction to racism the Chinese community in the Netherlands say they have been suffering, while addressing complaints that Beijing had been “covering up information” on the Covid-19 outbreak and repeating: “It is unclear whether the virus originates in China.”

Taiwan issue fans the flames

The letter coincides with a nasty diplomatic exchange between The Hague and Beijing over what looks like a minor incident when the Dutch Trade and Investment Office in Taiwan indicated it would change its name to “Netherlands Office Taipei.” China’s Foreign Ministry took offence, saying that “China firmly opposes any official ties between the Taiwan region and countries that have diplomatic ties with China, not to mention the establishment of any official agencies in Taiwan.”

Anti-Dutch propaganda in the Chinese press then went into overdrive. The hard-line, Communist Party controlled Global Times cited Li Haidong, a professor at the Institute of International Relations of the China Foreign Affairs University, saying that “The Netherlands aims to lift its political relations with Taiwan island and strengthen its interference in China's internal affairs, which is extremely destructive to regional stability and has seriously disturbed international efforts to combat Covid-19.”

Some “Netizens” even demanded a “boycott of all Dutch products,” and called on Chinese companies to “immediately stop exporting medical supplies to the country,” according to the newspaper. 

But the real reason behind Beijing’s mounting irritation with the Dutch lies deeper.

Superchips

China relies on imported chip manufacturing equipment in its efforts to create an independent semiconductor industry, which supplies the building blocks for a wide spectrum of electronics from smartphones to satellites and its expanding 5G communications network.

The only company in the world currently capable of satisfying China’s hunger for superchips is the Netherlands' ASML, whose Extreme Ultraviolet Lithography scanners are able to produce up to 2000 ultra-thin silicon wafers per day.

In 2018, the Chinese Semiconductor Manufacturing International Corporation unsuccessfully sought to buy one of the scanners.

Wassenaar Arrangement

Initially the Dutch government had given an export license for the sale of the equipment to China. 

But, according to Reuters news agency, the US started an aggressive campaign to block the transfer, culminating with Deputy National Security Advisor Charles Kupperman providing Netherlands Prime Minister Mark Rutte with an intelligence report on the potential repercussions of China acquiring ASML’s technology.

One argument was that the scanners are listed under the 1995 Wassenaar Arrangement on export controls for conventional arms and dual-use goods and technologies which can serve both civilian and military purposes. 

Huawei

The US grew increasingly suspicious, alleging that the Beijing government uses technologies provided by Chinese companies such as Huawei to spy on US government agencies and citizens. An improved Chinese 5G network, based on Dutch-made chips, could, Washington fears, improve China’s spying capabilities. 

The pressure worked and, at the beginning of January, the Dutch government decided not to renew ASML’s export licence, and the scanner, worth US$150 million never went to China.

Xu Hong, China’s ambassador, complained in an interview with the Dutch Financieele Dagblad, that the Netherlands “yielded to US pressure,” while stressing that “the blockade (of the ASML scanner) attracted a lot of attention in China, it is a typical example of politicising a trade relationship,” warning that if “ASML loses access to the Chinese market, they’re losing an important platform for innovation”  and flatly rejecting US accusations that Chinese import of the ASML technology involved huge security risks.