Sandra Phlippen: “China deserves its day in the sun”

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“ASML, the undisputed jewel in the crown of the Dutch business sector, is prevented by the US from continuing to develop in China. The Veldhoven-based company generates a billion and a half euros per annum exporting microchip production systems to China. The real showstopper has yet to come, though: the ultraviolet system, which is used to produce the microchips that are necessary to operate on the same level as the mobile technology elite, such as US company Intel. And what Americans want to prevent most of all is a scenario where China can keep up at the highest level.

Should we allow US national interests to break our commercial spirit? Sandra Phlippen Chief Economist ABN AMRO

Arguments about national security have been tossed around, as was to be expected. But since Donald Trump has started dropping the national security argument as a means to bypass democratic opposition – to his plans for a wall to keep out immigrants, for example, or to raise tariff walls to prevent imports from China – the idea of national security as an argument has lost some of its force.

Americans are worried that the Chinese will use ASML’s system to produce microchips that can be used for drones and cruise missiles. At least, that is what experts suspect was the gist of the report that Mike Pompeo (the US Secretary of State) handed to Dutch Prime Minister Mark Rutte when he visited Trump. Since then, a €110 million machine has been standing around in Veldhoven waiting – and waiting and waiting – for an export permit to China from the US Department of Transportation.

In a 2018 report, Trump’s Trade Representative Robert Lighthizer made it clear that he sees national security and technological dominance as one and the same. China should be prevented at all cost from becoming a key global player for microchip technology, he argued.

But in fact it is the US itself that is pushing China in that direction. Trump has been disrupting global supply chains and undermining trade treaties ever since he came into office. This is forcing China to develop for itself the high-level technology that previously it bought elsewhere. The China 2025 strategy is quite transparent about this. ASML’s flagship production system could be a game changer for China.

Should we allow US national interests to break our commercial spirit? In the past, those arguments of national security were reason enough for us to say ‘yes’: the US brought greater stability and security worldwide. But all that has changed entirely with the coming of the America First strategy. More and more, our security depends on Europe. Of course some of the concerns about technology theft and the long arm of the Chinese state in Europe are justified. Still, it is not easy to steal ASML’s technology, with the knowhow being confined to a network consisting of ASML and its regional suppliers. Not only that, but as soon as the Chinese open up one of the production systems it will set off an alarm bell in Veldhoven.

Is it at all in our interests to slow down China’s economic growth? Not really. China is growing at a slower and slower pace, and is rapidly falling behind the times. As a result, the country will likely be outdated before it becomes wealthy. The faster China’s growth cools down, the less Germany’s manufacturing industry performs, and an industrial recession in Germany will – sooner or later – drag the Netherlands down with it. China deserves its day in the sun: that would be better all round.”

Every week, Sandra writes a newspaper column for daily newspaper AD (in Dutch only), which can also be read here.

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