“I think you will see Japan and Netherlands follow our lead,” US commerce secretary Gina Raimondo said on CNBC Thursday. While no specifics were mentioned, this appears to be the first time that a high-ranking US official has named specific countries when speaking about cooperation on the export curbs.
Since October, the Biden administration has, in effect, banned trade with China in advanced semiconductor technology, manufacturing equipment and related human resources. The rules include measures that would prohibit foreign companies from exporting semiconductors that incorporate US technology.
US companies are strong in software used in chips as well as in the design software employed to make advanced semiconductors. South Korean and Taiwanese companies handle many products that use such US technology, which is already subject to certain regulations.
Japan and the Netherlands are the subject of US attention because of their strength in semiconductor manufacturing equipment, which so far has not been subject to US regulations. Companies in both countries are believed to be able build products that do not rely on US technology.
Three companies dominate the global market for chipmaking equipment – American company Applied Materials is the largest, followed by ASML of the Netherlands and Japan’s Tokyo Electron.
Tokyo Electron has a 90% share of the global market for equipment that forms circuits by applying specialised chemicals on semiconductor wafers and has a nearly 40% share of equipment that creates thin films on wafer surfaces. Of the approximately ¥2 trillion (US$13.6 billion) in consolidated sales for the fiscal year ended March 2022, a quarter of that was to China, making it the largest customer, ahead of South Korea and Taiwan.
“There’s definitely a sense of disappointment that allies were not on board with this rule when it rolled out,” said Jimmy Goodrich, vice-president of the Semiconductor Industry Association, said in an online forum Friday hosted by the Washington International Trade Association, adding there is a sense of urgency that allies “come on board soon to try and ensure that US companies don’t bleed out market share to their foreign competitors.”
He likely had the Japanese and Dutch companies in mind.
According to US media reports, a high-ranking Commerce Department official will visit the Netherlands this month. It is likely that full-fledged discussions will begin soon with Japan.
Restricting exports of semiconductor manufacturing equipment to China would have a significant impact on the Japanese economy. Exports of chipmaking equipment totaled around ¥3 trillion from January to September, up nearly 30% from the same period last year. The market has expanded rapidly, tripling in size over the past 10 years.
It now surpasses auto parts, which is about ¥2.8 trillion, and grew to become the second-largest export sector after steel, which is about ¥3.5 trillion. Chipmaking equipment now accounts for more than 4% of total exports. Of this, about ¥970 billion is to China, growing more than 600% over a decade.
The aim of US semiconductor regulations is security. The superiority in advanced semiconductors is directly related to the race to develop such cutting-edge military kit as hypersonic missiles and precision-guided weapons.
“We are ahead of [China]. We need to stay ahead of them. And we need to deny them this technology that they need to advance their military,” Raimondo said.
“This is the most strategic, most bold move we have ever made,” Raimondo said. Japan shares Washington’s perception that China is a threat to its security. If there is military action in Taiwan, Japan could join the US in a response.
Japan’s ministry of economy and industry is conducting interviews with companies on the impact of the US crackdown and discussing possible options for the future. On Raimondo’s remarks, a ministry official said, “We exchange views with the US on a daily basis.”
As to whether or not Tokyo has been approached by the US on the issue, the official said, “I cannot comment on that because it’s a diplomatic exchange.”
When asked at a news conference on Friday how Japan would respond to US requests, Yasutoshi Nishimura, minister of METI, said, “We would like to take appropriate measures.”