There is a significant global struggle occurring between China and the United States, with the EU caught in the middle. Recently, China has implemented export controls on rare earth minerals, crucial for numerous sectors, including semiconductor manufacturing. This situation places the EU in a precarious position due to its heavy reliance on Chinese imports, leading to suggestions for a trade war as a retaliatory measure.

The European Commission is reportedly contemplating what actions could be taken in response to these export restrictions. According to a source cited by Bloomberg, the Commission is cautious about worsening relations with an important trade partner.

The European Council on Foreign Relations (ECFR), a think tank, advocates for a robust counter-response to China’s diplomatic pressure. They propose limiting China’s access to Deep Ultraviolet (DUV) lithography machines—vital for chip production—which are predominantly fabricated by Dutch company ASML. China’s ambitions for its domestic semiconductor industry depend on securing such technology.

Old DUV machines are essential for producing high-performance processors, albeit with challenges. The ongoing trade tension and potential restrictions could lead to a significant delay in China’s chip-making advancements.

ASML’s role as the primary EUV machine supplier further complicates the situation, with current U.S. and European export controls effectively hindering China’s access to this advanced technology. The likelihood of China developing domestic alternatives is uncertain, making the DUV machines even more crucial. As the situation unfolds, the EU must navigate these diplomatic waters with care.