When the chips are down: Nexperia, Europe and the US-China trade and tech war

Problem

European and American carmakers have sounded the alarm after the Dutch government took ownership of Chinese-owned, Netherlands-based chipmaker Nexperia.

The intervention risks producing just the result the government says it wants to prevent. It poses an existential crisis to Nexperia as a company; and supply shortages resulting from Chinese countermeasures appear set to seriously disrupt car production.

Caught in the middle of the reinvigorated US-China trade and tech war, the Dutch government is seeking economic security. And after the shock of extraterritorial US pressure urging export controls on ASML (also based in the Netherlands) in 2022 and 2023, it is likely that the Dutch government was under pressure from across the Atlantic in the case of Nexperia. (This has been repeatedly denied by the Dutch economic affairs minister.)

But this move exposes the limitations of such policies. Many European companies rely on both the US and Chinese markets and will be asking: what if we too are forced to choose between America and China? Indeed, this case calls for broader assessments, including understanding what the Europewide implications are of either losing access to the US market or facing the wrath of Chinese retaliation. But, as with ASML, the EU and its member states are mainly playing defence.

Solution

Both Nexperia and the Dutch government have tried to calm the situation by saying talks with China will secure exemptions from countermeasures. Pressure from American carmakers on their own government might also result in some flexibility towards applying the entity list requirements. A week into this crisis, a swift resolution is not on the horizon. But even if this happens, the road ahead is not straightforward.

Earlier this year, the Dutch government, supported by its relatively strong chips sector, initiated an EU member-state coalition of the willing to push for a much stronger and more sovereign European ecosystem. The European Chips Act 2.0 is in the making. But the Nexperia case shows time is short.

A new Dutch coalition government that comes in after the general election on 29 October should think in a clear-eyed way about the implications of such a European industrial policy. The new government programme should reflect the view, which has increasingly gained ground in the Netherlands, that economic and job security are not for free but come at a European budgetary price.  

Context

Last week the Dutch government invoked the Goods Availability Act on the grounds of “serious governance shortcomings” by Nexperia’s CEO. It sought to ensure the stability of the company and remove risks of strategic dependence on China. This is a most consequential economic security measure taken by the former free-trade champion.

The urgency of the matter is reinforced by the wider political and geoeconomic context. The intervention came while trade tensions between the US and China were on the rise after this summer’s agreement between American and Chinese negotiators in Madrid. The US had earlier banned trade with subsidiaries of companies on the entity list. Wingtech, the (former) Chinese parent company of Nexperia, is on this blacklist. This potentially threatened Nexperia’s American business and access to US technology.