The US has convinced two other countries to join it in expanding a ban on exports of chip-making technology to China, according to a report by Bloomberg. The move could cramp China's home-grown chip industry as there are few, if any, other sources for the sophisticated technologies required for modern semiconductor manufacturing.

As part of a broader trade war with China, the US sought for its chip technology embargo from Japan and the Netherlands, where some of the world's largest manufacturers of semiconductor manufacturing equipment are headquartered. It first imposed restrictions on exports of chips to China in 2015, extending them in 2021 and twice in 2022. The most recent restrictions were introduced in December.

It has already banned exports of artificial intelligence hardware, such as graphical processing units (GPUs), tensor processing units (TPUs) and other advanced application-specific integrated circuits (ASICS), and the latest extreme ultraviolet lithography (EUV) equipment used to make them, and the Dutch government has followed suit. The Netherlands is home to ASML, the only manufacturer of EUV tools.

The US has now persuaded the Netherlands and Japan join it in banning transfers of some slightly older deep ultraviolet lithography (DUV) equipment. ASML makes this too, while Japan is home to DUV equipment makers such as Canon, Nikon and Tokyo Electron Ltd., making the two countries key to the US plan to gnaw away at China's dominance in the broader microchip market.

In contrast to newer chips such as the ones used in Apple's latest iPhones, made using EUV machines, the larger, older microchips made with DUV equipment are mostly used across the auto and the industrial sector.

The three countries finally reached agreement on restrictions on the export of some DUV equipment on January 27, 2022, Bloomberg reported.

"This is a significant escalation as it goes from preventing China's entry and progress in the high end to hindering its current semiconductor industry," said Josep Bori, research director for thematic intelligence at analytics and consulting company GlobalData.

In October last year, the Biden administration had imposed restrictions on certain exports to China to reduce its capability to produce newer, smaller and smarter semiconductors.  

These restrictions included an export ban on advanced computing chips and devices containing them, and certain semiconductor manufacturing items including extreme ultraviolet lithograph machines.

Then in mid-December, the administration expanded those restrictions to prevent an additional 36 Chinese institutions and chip makers from accessing US chip technology, including Yangtze Memory Technologies Corporation (YMTC), the largest contract chip maker in the world.

The ban on exports included restrictions on semiconductors used in artificial intelligence hardware, such as graphical processing units (GPUs), tensor processing units (TPUs) and other advanced application-specific integrated circuits (ASICS).

Discussions in camera

The combination of restrictions by the three nations could be the answer to US's problems as the previous restrictions may not have been enough to thwart China's plan to manufacture advanced chips tuned for artificial intelligence tasks, said Asif Anwar, executive director of global automotive practice at Strategy Analytics.

The support of Japan and the Netherlands may help the US stop China from fabricating more advanced semiconductors, Anwar added.

The discussions between the three countries were held in private, with no plans to announce the outcome, Bloomberg said. It cited sources saying the Netherlands will expand its restrictions on ASML Holdings in order to prevent the company from exporting some DUV lithography machines, crucial for industrial lines building electronic chips. Similarly, Japan will impose similar prohibitions on Nikon Corporation, the sources said.

Those companies are key, said Anwar of Strategy Analytics. "Companies such as ASML and Nikon can play a bigger role in ensuring that China doesn't have the ability to domestically manufacture the more advanced chips that will enable the next stage of AI-based applications across IT/enterprise datacenters, autonomous vehicles, and other markets," he said.

"Currently, the ASML CEO expects China sales in 2023 to remain steady despite restrictions and so this is limiting the effectiveness of US-based chip control policies," Anwar added.

ASML reported revenue of