America’s toolkit in the tech war: the role of Europe in the US-China competition
Although Taiwanese cutting-edge semiconductors are in the headlines of the media, the real techno-power of the US stems from the European tool-making sector.
Although Taiwan Semiconductor Manufacturing (TSMC), the producer of 90% of the most advanced chips in the world, is commonly discussed as the pearl of American industrial superiority in its competition with China, the real power of the United States comes out of the European Union that has been providing semiconductor industry with the necessary equipment. While Taiwan is a focal point for manufacturing cutting-edge chips that are used in precision weaponry, artificial intelligence, and high-tech applications, the European Union supports the backbone of the industry.
The Mate 60 and Pura 70 models of Huawei smartphones reveal that China has little problem with scientific know-how and mass production of more advanced processors and NAND memories than experts estimated. It signals that the Chinese semiconductor sector is developing to equalize opportunities with the United States in the field of computing power. This subfield of artificial intelligence, the alleged driver of the Fourth Industrial Revolution, is considered the only fraction the US confidently dominates.
On the other hand, the United States is so incautiously immersed in “reshoring” the cutting-edge chips inside its borderland that this tendency diminishes the role of Taiwan and the significance of its military defense for the Western powers. In other words, the US is no less eager to domesticate semiconductor fabrics, decreasing the weight TSMC is currently holding.
However, there is a complicated system of machinery building and equipment processing in Europe that neither the United States nor China could single-handedly maintain without severe financial costs. Unlike the semiconductor facilities of Taiwan that China and the United States are ambitiously building in homeland territories, ASML, the lithography manufacturer in the Netherlands, has been holding its monopoly in the EUV machinery sector.
A network of 5000 suppliers, approximately half of which are located in Europe, accounted for 80% of the supply spend of ASML in 2022. The company is an integrator of the final lithography building only about 15% of the tool. The reconstruction of this network of suppliers is the most challenging part of the semiconductor ecosystem domestication for China. It means replicating the whole network inside a single country is more financially and economically burdensome than building a TSMC-type chip fabric or ASML-type machinery factory.
In turn, ASML cooperates with Sioux Technologies of the Netherlands in developing the Reticle Masking module and has bought optics from Zeiss of Germany since the late 1980s. Zeiss in cooperation with the Fraunhofer Institute IOF produces optics consisting of up to 100 layers that reflect only one percent of the light and are coated with a unique system in atomic-based precision. Another German company TRUMPF is responsible for CO2 lasers to ASML to build its EUV machines. VDL Enabling Technologies Group of the Netherlands builds vessels with cables and wafer handlers for EUV machines of ASML.
The European role in the semiconductor machinery industry goes beyond ASML in a less-mentioned manner. Chinese chip designing sector works on Electronic Design Automation Software (EDA) of foreign companies such as Synopsys, Cadence, and Siemens. Zeyi Yang writes that the United States controlling 70% of the EDA market may coordinate with 41 other countries including Germany and retaliate against the tech war with China on this front. Although Siemens holds a marginal market share of 5.23%, the company is an alternative software supplier for Chinese chip designers. When the United States jumps to the restrictions of EDA software of GAAFET (gate-all-around field-effect transistor) architecture used to develop modern chips, the support of German companies plays a significant role in how much the measures hurt the Chinese chip sector.
As evidence, they were former Chinese engineers of Siemens who established SEIDA in Hangzhou, a company that focuses on optical proximity correction (OPC). Moreover, Siemens EDA possesses a training center in Beijing. As electronic automation software is not as traceable as lithography machines, a small glitch in the coordination could undermine the whole dominance of the US in the EDA sector.
The EDA software is another necessary tool for China to secure a national semiconductor ecosystem independent from American influence. However, the regulatory policies of Washington deter the Chinese tech boom only if the White House guarantees long-lasting support from the European authority. Taiwan and chip fabrication are at the forefront of the US-China competition while the main source of American privileges in this war stems from its European partners.
The "Mate 60 surprise" with Kirin 9000 processors demonstrated the advancements of Chinese SMIC and Huawei in this front and Taiwan is located in a territorially reachable position. In addition, Washington’s intention to construct a 4-nm fab in Arizona until 2025 and a 2-nm fab until 2028 in cooperation with TSMC shows how ambitious the United States is to “reshore” one of the most strategic technologies in its territory from China’s threat zone. This policy considerably decreases the significance of the island in the semiconductor supply chain.
On the other side, the semiconductor tools industry in Europe are in secure territorially, and at high costs economically. Actually, the complex nature of tool-making is a more challenging issue China faces in the techpower rivalry. For example, lithography machine building is complicated with a chain of around 5000 suppliers which cost huge sums for a single economy such as China to replicate it alone.
In an overview, the tool-making sector of the semiconductor ecosystem poses more challenges to China than Taiwanese cutting-edge chip fabs although the media outrages about the latter more repeatedly. Domestication of the whole semiconductor ecosystem leads to unexpected economic outcomes even a country like China could hardly bear.