The US Made the Dutch an Offer They Couldn’t Refuse

ASML, a Dutch firm that currently is the world’s only manufacturer of the extreme ultraviolet lithography machines that produce the most advanced chips, is repeatedly getting stiff-armed by the US – intimidated into breaking deals and told not to sell a widening range of goods to China.

Back at the start of the year, after a sit-down with the consigliere for the White House, the Netherlands government thought it would be a very good idea to ban future exports to China of DUV (deep ultraviolet) lithography machines.  It blocked ASML at the last minute from shipping three machines, each worth tens of millions of dollars. That, it turns out, wasn’t enough to please Washington.

The U.S. government recently sent a couple of Made Men around to say that from now on ASML could not even service the DUV machines it had already sold to China! Bada bing bada boom – the Dutchies got the message.

“We are in talks, good talks, and we are also watching out very specifically for the economic interests of ASML,” Dutch Prime Minister Dick Schoof said last week.

Peter Wennink, who recently decided it was best to retire as CEO of ASML disagrees.

“These kinds of discussions are not being conducted on the basis of facts or content or numbers or data but on the basis of ideology. I have problems with that,” he said from an undisclosed location.

Asia Financial reported in September that Beijing has warned that the Dutch chip toolmaker “risks losing access to the Chinese market ‘permanently’ if it implements the latest US export curbs”.

China accounted for 45% of ASML’s sales in the second quarter of the year.

The moves are part of a broader – ultimately doomed – effort to cut China off from advanced technology.  It is just another example of how the US has weaponized the global supply chain.  Sanctions, secondary sanctions, chokeholds on the SWIFT trading system and other coercive measures are pushing the global system towards a great reckoning.

Microchips are more important than oil in driving business in the digital age. The US strategy is to constrain China’s development by kneecapping some of the US’s own allies who supply goods to China. It’s a bit like the Nord Stream pipeline being blown up (who do you think did that?) – it hurt Russia and screwed Germany but has done wonders for the US which now supplies Germany with 80% of its liquified natural gas at prices that make the Germans’ eyes bleed. “We bend more rules than the Catholic Church!” says Underboss Johnny “Sack” Sacrimoni.

ASML sells nearly 70% of all lithography machines in the world that are crucial to silicon chip manufacturing.  Their key clients include Taiwanese giant TSMC which produces the global lion’s share of advanced semiconductors. As with ASML, the Americans have pressed TSMC’s head to the concrete and told them to stop supplying their top shelf products to China, the ones that are necessary for A.I. products amongst other advanced applications.

Coercive containment is a rogue strategy with a short shelf life, particularly as China has a huge war chest to invest in the R&D necessary to develop its own fully-integrated semi-and-superconductor supply chain. The simple fact is China now has a lot more smart people than the US. Last year, for example, China produced over 4 million STEM (Science, Technology, Engineering & Mathematics) graduates compared to about 800,000 in the US. Multiply that over a decade and you can see where this is heading.

It also doesn’t say much for America’s faith in the free market, global competition, trade rules, or their own ability to compete in areas other than blowing people and things up with high explosives.

The moves against ASML and TSMC are just a small part of a vast network of US sanctions, coercions, and containment strategies designed to weaken and eventually topple the governments of Russia, China, North Korea, Syria, Iran, Venezuela, and a host of other countries. It is also a cunning attack on the US’s own allies to increase their dependence on US goods, services and protection. The unity, expansion and growing strength of BRICS and the SCO are likely to doom these plans.

Like an alcoholic reaching for the bottle, the US just can’t stop reaching for sanctions these days.  Professor Nicolai Petro at University of Rhode Island says the literature on sanctions is very clear.

“They haven’t worked historically. The measure of the failure of sanctions depends on what the [sanctioned] country sees as essential – the closer those objectives are to national survival, the less effective sanctions will be.”

More than sixty years of sanctions against Cuba have hurt the country but achieved none of the US goals. Vietnam survived years of US bombing and decades of US sanctions to emerge as a powerful economy.  Crushing sanctions – “coercive diplomacy” – against North Korea has contributed to the misery of the population but has not stopped North Korea becoming a nuclear power.  Iran, Russia, China and a growing list of countries have been hit by a blistering array of sanctions – all of which have failed to do much more than accelerate a slow peeling away of support for the US.

Some of the most trenchant criticism of US sanctions mania is coming from the home team. US economist Art Laffer, dubbed the father of supply side economics, has called for an end to the current policy of weaponizing trade with sanctions, restrictions and other coercive measures.

“The US economy was created by free trade. Trade creates prosperity. If you want to get angry at a country, use your military [Please don’t!]. If you want to get angry at them verbally, use your State Department, but leave trade out of the mix,” Laffer says. ”Sanctions are a very crude, vulgar instrument of international policy – and they don’t work.”

Beijing isn’t without countermeasures and we have yet to see China push back really hard against US bullying. In August last year China fired a warning shot across the bow: limiting export of two rare earth metals – germanium and gallium – both used in semiconductor manufacturing and in both of which China holds near-monopolies. They are critical to your phone and the digital networks it connects to.

According to the Washington-based Center for European Policy Analysis (CEPA) the “short-term damage is small, but the West must wake up.” CEPA’s proposed solution to the germanium issue, however, is reflexively American:

“Chinese control of germanium production in southeast Asia must be loosened. Sanctions should be imposed on Chinese companies that control bauxite refining in Southeast Asia – with the aim of forcing them to relinquish ownership,” it said in its online platform.

This is, yet again, gangster capitalism, gunboat diplomacy and the actions of a player that used to preach the merits of competition but can’t compete on a level playing field.  The lack of pushback is a sign of how our governments, media and major international institutions have been captured by the US.  But as Tony Soprano would say, “Whaddaya gonna do?”

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