The EU Joins Washington’s Campaign to Contain China

Earlier this month, European Commission President Ursula von der Leyen met with Chinese President Xi Jinping in Beijing. The high profile meeting was Europe’s attempt to stabilize its tense relationship with China as Chinese exports bolster Russian President Vladimir Putin’s invasion of Ukraine. After the talks, von der Leyen said the landmark EU-China Comprehensive Agreement on Investment, which aims to increase bilateral investment, “did not come up,” indicating the deal is likely dead.

The impasse after the meeting between von der Leyen and Xi is the latest in a series of developments that align Brussels’ China policy with that of the Biden administration. The EU is preparing to adopt export controls on semiconductors, impose restrictions on private sector investment in Chinese tech companies, and enact rules intended to block China from dominating Europe’s renewable energy market. Each of these initiatives follows on an analogous U.S. policy and could significantly hamper China’s technology sector. Although there is significant disagreement across European countries about what the continent’s overall China strategy should be, strenuous European attempts to undermine China’s strategic industries are consistent with U.S. efforts to contain China.

But as a growing group of foreign policy analysts have argued, containing China by hamstringing its tech sector is a dangerous and counterproductive policy. Indeed, containment increases the chance of a kinetic war with China, may preclude cooperation with Beijing on the climate crisis, and will seriously damage the global economy. While still bearing significant risks, a strategy that prioritizes cooperation with China on critical issues like climate mitigation and nuclear nonproliferation is a preferable alternative that would reduce the likelihood of war. Europe is playing with fire by adopting Washington’s bellicose containment strategy.

Collapsing China’s Semiconductor Industry

Last October, the U.S. Commerce Department announced unilateral export controls on China’s semiconductor industry, claiming that advanced semiconductors give China the necessary computational power to build better nuclear weapons and surveillance tools that violate human rights, particularly in Xinjiang. Far more severe than any measures to restrict China adopted under President Trump, semiconductor export controls were widely viewed by analysts as a “declaration of economic war.” The crux of restrictions on non-U.S. companies is a new “advanced computing Foreign Direct Product Rule” that bans foreign firms that use U.S. technology from selling advanced chips or production equipment to China.

This rule put the Netherlands in Washington’s crosshairs. Dutch giant ASML, the largest technology company in Europe, relies on U.S. software to operate its lithography machines and outsources some engineering work to its San Diego-based subsidiary, Cymer. With the threat of significant financial penalties looming, ASML began complying with U.S. export controls just days after they went into effect, even though it depends on China for 15 percent of its revenue. Late last year, ASML CEO Peter Wennink said that the company had “already surrendered” to the U.S. in 2019 when it stopped selling its most advanced lithography machines to Chinese firms. Washington’s latest export controls go a step further by banning the sale of ASML’s second-most advanced lithography machines to China since they can be used to produce cutting-edge chips for training artificial intelligence systems.

The Netherlands announced last month it would enact domestic semiconductor export controls that largely bring it into compliance with U.S. rules. Dutch Prime Minister Mark Rutte felt the need to clarify he was negotiating with Washington “from a position of sovereignty” and that he did not believe the Netherlands had been “put under pressure.” But to outside observers, such as the Belgian Prime Minister, it was obvious that the Dutch fell victim to U.S. “bullying.”

For its part, the EU – which was initially left out of the export control negotiations as there are no other major lithography machine suppliers in Europe – is now likely to adopt semiconductor restrictions of its own. Dutch Trade Minister Liesje Schreinemacher said the Netherlands will submit its export controls to the European Commission (EC) and called for a joint position “to show we are…a geopolitical bloc.” Valdis Dombrovskis, EC Vice President in charge of trade, welcomed the move, agreeing that “EU-level export controls” are needed for advanced semiconductors and other technologies with both civilian and military applications. Continent-wide restrictions would sever China’s supply of essential components for semiconductor production equipment such as extremely high-quality mirrors and precision lasers, made only by the German firms Zeiss and Trumpf respectively. As Bloomberg reported today, Germany has also proposed export controls on the sale of chemicals for semiconductor production to China; the German chemical company Merck has a hand in the production of nearly every chip as a key supplier of chemicals like photoresists that are used to print patterns onto semiconductors.