The Multimillion Dollar Machines at the Center of the U.S.-China Rivalry

They are smooth white boxes, roughly the size of large cargo vans, and they are now at the heart of the U.S.-China technology conflict.

As the United States tries to slow China’s progress toward technological advances that could help its military, the complex lithography machines that print intricate circuitry on computer chips have become a key choke point.

The machines are central to China’s efforts to develop its own chip-making industry, but China does not yet have the technology to make them, at least in their most advanced forms. This week, U.S. officials took steps to curb China’s progress toward that goal by barring companies globally from sending additional types of chip-making machines to China, unless they obtain a special license from the U.S. government.

The move could be a significant blow to China’s chip-manufacturing ambitions. It is also an unusual flexing of American regulatory power. American officials took the position that they could regulate equipment manufactured outside the United States if it contains even just one American-made part.

That decision gives U.S. officials new sway over companies in the Netherlands and Japan, where some of the most advanced chip machinery is made. In particular, U.S. rules will now stop shipments of some machines that use deep ultraviolet, or DUV, technology made mainly by the Dutch firm ASML, which dominates the lithography market.

Vera Kranenburg, a China researcher at the Clingendael Institute, a Dutch think tank, said that while ASML has made clear that it will follow the regulations, the company was already chafing under earlier regulations that barred it from exporting a more sophisticated lithography machine to China. “They’re of course not happy about the export controls,” she said.

After being thrust into geopolitics yet again, ASML has been careful in its response, saying in a statement this week that it complies with all laws and regulations in the countries where it operates. Peter Wennink, the chief executive officer, said that it was “just a handful” of Chinese chip factories where the company would not be able to ship certain tools. But “it is still sales that we had in 2023 that we’ll not have in 2024,” he added.

In a statement, the Dutch foreign trade minister, Liesje Schreinemacher, said that the Netherlands shares U.S. security concerns and continuously exchanges information with the United States, but that “ultimately, every country decides for itself what export restrictions to impose.” She pointed to more permissive restrictions announced by the Dutch government in June.

A spokesman for the U.S. Department of Commerce declined to comment.

ASML’s technology has enabled leaps in global computing power. The increasing precision of its machines — which have tens of thousands of components and cost as much as hundreds of millions of dollars each — has allowed circuitry on chips to get progressively smaller, letting companies pack more computing power into a tiny piece of silicon.

The technology has also given the United States and its allies an important source of leverage over China, as governments compete to turn technological gains into military advantages. Although Beijing is pouring money into the semiconductor industry, Chinese chip-making equipment remains many years behind the prowess of ASML and other key machine suppliers, including Applied Materials and Lam Research in the United States and Tokyo Electron and Canon in Japan.

But U.S. efforts to weaponize this technological advantage against China appear to be straining alliances. In Europe, government officials increasingly agree with the United States that China poses a geopolitical and economic threat. But they are still wary of undercutting their own companies by blocking them from China, one of the world’s largest and most vibrant tech markets.

Dutch technology, in particular, has been the focus of a multiyear pressure campaign from the United States. In 2019, the Trump administration persuaded the Dutch to block shipments to China of ASML’s most state-of-the-art machine, which uses extreme ultraviolet technology.

After months of diplomatic pressure from the Biden administration, the governments of the Netherlands and Japan agreed in January that they would also independently curb sales of some deep ultraviolet lithography machines and other types of advanced chip-making equipment to China.

The United States and its allies have viewed sales of the deep ultraviolet lithography machines as less of a national security risk. The chips they produce are considerably less advanced than those built with the most cutting edge machines, which now power the latest smartphones, supercomputers and A.I. models.

But that position was tested this summer, when a Chinese firm used ASML’s deep ultraviolet lithography technology along with other advanced machines to blow past a technological barrier that U.S. officials had hoped to keep China from reaching.

In August, the Chinese telecom giant Huawei unexpectedly released a new smartphone containing a Chinese-made chip with transistor dimensions rated at seven nanometers, just a couple of technology generations behind the latest chips made in Taiwan. Analysts have concluded that the chip was made by China’s Semiconductor Manufacturing International Corporation with the use of the Dutch deep ultraviolet lithography machinery.

Gregory C. Allen, a technology expert at the Center for Strategic and International Studies, a Washington think tank, said the new export control rules had been in the works long before the Huawei announcement. But, he said, the development “helped leaders throughout the U.S. government understand that there was no more time to waste and that updated controls were urgently needed.”

Mr. Allen said that the controls would not necessarily break China’s most advanced chip-makers immediately, since they have already stockpiled a lot of advanced machinery. But it would “dramatically restrict” their ability to manufacture the most advanced kinds of semiconductors, like seven nanometer chips, he said.

For now, ASML is still doing brisk business with China. In its earnings report this week, ASML said that sales to China had surged in the third quarter to account for 46 percent of the company’s global total, far above historical levels.

Analysts at TD Cowen estimated that ASML’s China sales would reach 5.5 billion euros (about $5.8 billion) this year, more than double the total last year. Next year, the new export controls could cut 10 to 15 percent off the company’s China revenues, they projected.

Roger Dassen, ASML’s chief financial officer, said in the earnings call that most of the orders ASML was completing this year had been placed in 2022 or even the year before, and were largely for machines that would make slightly older types of chips.

All the shipments were “very much within the limits of export regulation,” Mr. Dassen said.

For the machines that face new U.S. restrictions, the Dutch company will now be barred from supplying replacement parts and helping to service those systems. That will mean Chinese companies are likely to have manufacturing problems at some point.

These hugely expensive machines rely on regular software and maintenance support to continue churning out chips, said Joanne Chiao, a semiconductor analyst at TrendForce, a market research firm.

ASML is not the only equipment supplier caught up in the latest restrictions. Other kinds of advanced machines that are essential to produce the most advanced chips, like those from the U.S. companies Applied Materials and Lam Research, are detailed in the latest restrictions.

Lam, in a conference call on Wednesday, said revenue from China jumped 48 percent in its first fiscal quarter as companies stocked up on machines to make both mature chips and advanced products. It had already estimated that restrictions on sales to China would hold down revenue this year by about $2 billion; executives added that the expanded rules issued this week wouldn’t materially change that estimate.

An Applied Materials spokesman said the company was still reviewing the new rules to gauge their potential impact.

John Liu contributed reporting from Seoul.

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