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US deals signal heightened semiconductor equipment competition



Employees are seen working on the final assembly of ASML's TWINSCAN NXE:3400B semiconductor lithography tool, Veldhoven, the Netherlands, 4 April, 2019 (Photo: Reuters/Bart van Overbeeke Fotografie).

Author: June Park, Schmidt Futures

Export controls on semiconductor technology have been expanded after the conclusion of US bilateral negotiations with Japan and the Netherlands in March 2023. This is only the beginning as the United States is set to further tighten export controls, as recommended in the National Security Commission on Artificial Intelligence’s final report.

The US Department of Commerce’s Bureau of Industry and Security issued new regulations on 7 October 2022, which were expected to bring about protests from semiconductor equipment makers and foundries. While Washington insists that the measures are designed to protect US intellectual property and defend national security, they reflect the heavy competition in the global semiconductor equipment business.

According to 2019 figures, the United States had a 17 per cent share of overall semiconductor manufacturing equipment exports, trailing behind Japan (28 per cent) and closely followed by the Netherlands (17 per cent), Singapore (10 per cent) and South Korea (10 per cent).

The United States is dominant in the upstream integrated circuit design process, but it faces competition from the Netherlands and Japan in the midstream integrated circuit manufacturing process. It also does not have a substantial market share in the downstream integrated circuit packaging and testing process.

The competitive nature of the global semiconductor industry is particularly salient in lithography equipment (dubbed scanners or steppers). The Dutch company ASML Holding NV dominates this market, which was valued at US$11.8 billion in 2022 and is expected to grow at a compound annual growth rate of 10 per cent, reaching US$18 billion by 2025.

The current moves to deter the Netherlands and Japan from exporting semiconductor equipment to China aim to undercut China’s access to high-end chip manufacturing equipment. But these efforts might also lead to a shift in market share depending on how export controls are implemented.

After months of deliberation amid negotiations with the United States, ASML announced it would prevent the sales of specific models of semiconductor equipment to an unnamed country. The affected models were the TWINSCAN NXT:2000i, the NXT:2050i and the NXT:2100i, which are immersion deep ultraviolet machinery used for lithographic processes in the most advanced logic and memory chips.

ASML has announced that the added measures will not affect its revenue, as it is currently operating at capacity. But given that the US Department of Commerce’s Bureau of Industry and Security has already prohibited the sale of extreme ultraviolet machinery to China, ASML must plan its next steps wisely and diversify into other jurisdictions. The additional measures are pending implementation until the Netherlands enacts new laws and ASML is bound by any existing contracts to deliver machines until that time.

Japan has expressed its intent to participate in export controls, announcing its own export control mechanisms in March 2023. But Japanese Foreign Minister Yoshimasa Hayashi subsequently paid a visit to his counterpart in Beijing, Qin Gang, given the possible backlash from China. As expected, China has contemplated placing export controls on rare earth materials in retaliation. There is speculation on which Japanese companies would be subject to the ban on semiconductor equipment sales to China, with the most likely being Tokyo Electron.

Depending on how Japan implements the export curbs, Japanese companies Canon and Nikon may seek to revive their lithography businesses, a market in which they once flourished but in which they have lost market share as they have instead focussed on camera lenses.

The Bureau of Industry and Security measures announced on 7 October 2022 have led to a plunge in semiconductor equipment sales to China, demonstrating the immediate impact of the measures on US companies such as Applied Materials, KLA and Lam Research.

The implementation of US export controls on semiconductor equipment may reset the competition for market share and created uncertainty for major players. Other countries such as Singapore, Germany and South Korea are likely to be subject to additional measures in the near future.

As access to the Chinese market shrinks under US export controls, it is bound to spur heightened competition and geo-economic conflict between the United States and China.

June Park is a political economist and an inaugural Asia Fellow of the International Strategy Forum at Schmidt Futures.

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Policy failure with Italian characteristics?



Italian Prime Minister Giorgia Meloni at a press conference after the Council of Ministers, Rome, Italy, 3 November 2023 (Photo: Reuters/Augusto Casasoli).

Italy’s participation in China’s Belt and Road Initiative may end in 2024. The decision to join in 2019 led to political and economic costs that have not been offset by expected benefits.

Italy’s Withdrawal from the Belt and Road Initiative

Italy’s participation in the Belt and Road Initiative (BRI) may soon come to an end, as the country entered China’s initiative in March 2019. A Memorandum of Understanding (MoU) was signed in Rome by former Italian prime minister Giuseppe Conte and Chinese President Xi Jinping. Less than five years later, the whole BRI story risks becoming a major foreign policy failure for Italy.

Debating Italy’s Participation in the BRI

The MoU will be automatically extended in March 2024, unless terminated by either party at least three months in advance. As the deadline approaches, the government of current Prime Minister Giorgia Meloni is expected to announce its decision soon. In 2019, the Conte I government’s decision to sign the MoU was made amid a heated yet highly ambiguous political debate.

The Downside of Italy’s BRI Gamble

Italy’s gamble in joining the BRI has not paid off as expected. Critics have scrutinized Italy’s involvement in the BRI, and the COVID-19 pandemic has affected anticipated economic benefits. As a result, Italy has been unable to fully leverage the MoU and engage effectively with Chinese stakeholders, leading to a shift away from emphasizing its involvement in the BRI.

Source : Policy failure with Italian characteristics?

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Australia’s troubled EU trade deal still second best



Sheep run into a holding pen at a farm near Delegate, in New South Wales, Australia, 19 November 2023 (Photo: Reuters/Peter Hobson).

The proposed trade agreement between Australia and the EU is in trouble due to EU protectionism, particularly in agriculture. This offers lessons for both parties and poses a potential threat to the Asia-Pacific region’s trade diplomacy.

Trouble in the Australia-EU Preferential Trade Agreement

Author: Ken Heydon, LSE

After five years of intense negotiation, the proposed preferential trade agreement (PTA) between Australia and the European Union is in trouble. On 29 October 2023, talks were suspended, with little immediate prospect of resumption. This setback, plus other recent developments in EU preferential trade policy, offer some broad lessons — for both Australia and the region.

Issues and Challenges

The failed negotiation is, in part, a victim of current times. With liberal trade policy in retreat, government-fuelled industrial policy is on the rise, and, according to the Eurobarometer Poll of July 2022, the majority of Europeans now view protectionism positively. The immediate cause of breakdown in the talks was, unsurprisingly, agriculture. This is the sector that, given EU intransigence, was a key factor in the failure of the Doha Development Round of multilateral trade talks.

Implications and Lessons

Australia’s particular concerns during negotiations with Brussels arose from EU resistance to opening up its market to Australian beef and sheepmeat, and protective geographical indications that would restrict the labelling of Australian feta cheese and prosecco. As highlighted by the WTO Trade Policy Review of the EU, the number of products subject to EU ‘geographical indication protection’ continues to rise. Looking ahead, there are still some broad strategic factors that might favour a deal. For the European Union, this includes gaining secure access to Australia’s critical minerals, such as lithium and copper.

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New US–China working groups bridging bilateral gaps



US Treasury Secretary Janet Yellen walks with China's Vice Premier He Lifeng during their meeting at the Diaoyutai State Guesthouse, Beijing, China, 8 July 2023 (Photo: Reuters/Pedro Pardo).

US-China economic and financial working groups established in September 2023 aim to stabilize relations and prevent economic decoupling, addressing trade imbalances and fostering dialogue between the world’s largest economic powers.

US–China Economic and Financial Working Groups

The establishment of the US–China economic and financial working groups in September 2023 marked a significant turning point in the often uneasy relations between Washington and Beijing. In the midst of increasing tensions due to great power rivalry, these working groups have the potential to promote greater stability between the world’s two largest economic superpowers.

Challenging the Notion of ‘Decoupling’

While ‘decoupling’ has become a popular term representing the United States and China’s efforts to separate their economies, the establishment of the working groups challenges this idea to a certain extent. Policymakers on both sides understand the risks associated with complete economic decoupling, as bilateral economic ties are characterized by intrinsic interdependence.

Promising Benefits and Potential Challenges

The working groups, supported by high-level officials from both countries, offer a structured channel for ongoing dialogue. They have the potential to promote trust, transparency, and direct communication while also addressing challenges such as structural trade imbalances and intense rivalry in high-tech competition.

Source : New US–China working groups bridging bilateral gaps

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