The Squeeze Gets Tighter
ASML, the Dutch company that makes the machines needed to manufacture nearly every advanced semiconductor on the planet, is operating under a growing web of export restrictions that are cutting off its most lucrative growth market. The Dutch government, acting in coordination with Washington, has steadily expanded controls over which ASML tools can be shipped to China – and the list of restricted equipment keeps getting longer. What started as a ban on the most advanced extreme ultraviolet (EUV) lithography systems has now crept into older deep ultraviolet (DUV) technology as well, leaving Chinese chipmakers scrambling to stockpile whatever they can before the next round of restrictions lands.
The political logic is straightforward: semiconductor manufacturing equipment is a chokepoint. Whoever controls access to it controls who can make advanced chips – and by extension, who can build the most capable AI systems, military hardware, and communications networks. ASML sits at the center of that chokepoint. No other company in the world makes EUV machines, which are required to etch the smallest, most powerful chip architectures. That monopoly makes ASML both indispensable and politically exposed in ways that few industrial companies ever face.
What Has Actually Been Restricted
The restrictions have moved in phases. The original U.S. pressure on the Netherlands – applied during the Trump administration and extended through Biden’s – focused on ASML’s EUV systems, which the company had already been blocked from shipping to China since 2019. The more recent escalation targeted DUV immersion systems, the workhorse tools used to produce chips at the 7nm to 28nm range. These are not cutting-edge machines, but they are capable enough to matter for a wide range of commercial and defense applications. China’s chipmakers had been quietly building capacity around them as a workaround to the EUV ban.
ASML confirmed in its most recent earnings disclosures that China-related revenue has dropped significantly as a share of total sales, after Beijing-based customers rushed to place orders ahead of earlier restriction deadlines. The company now faces a structural gap: a major customer base that cannot legally receive its most advanced products and will soon have limited access even to its mid-range equipment. ASML’s order book remains strong due to demand from Taiwan, South Korea, and the United States, but the long-term arithmetic of losing China as an unrestricted market is not painless.
The Gap That Cannot Be Easily Closed
China’s semiconductor industry is working hard to develop domestic alternatives, and some progress has been made – Huawei’s 7nm chip, reportedly produced by SMIC using DUV tools in a process that pushes the technology to its limits, was widely covered as a sign that restrictions alone cannot freeze Chinese chipmaking in place. But pushing DUV equipment to approximate what EUV does more cleanly is expensive, slow, and still produces inferior yields. The gap between what China can manufacture domestically and what Taiwan’s TSMC or South Korea’s Samsung can produce for global clients is not narrowing at any speed that changes the strategic picture in the near term.
The deeper problem for China is that chipmaking equipment is itself a product of decades of compounding supply chain specialization. ASML’s EUV machines contain components sourced from hundreds of suppliers across Europe, Japan, and the United States. Building a domestic equivalent is not a matter of reverse-engineering a single device – it requires rebuilding an entire industrial ecosystem that took the global semiconductor industry forty years to develop. China’s chipmaking ambitions are real and well-funded, but ambition and capital do not compress that kind of timeline easily.
For ASML specifically, the restriction regime creates a peculiar business problem. The company cannot ignore the political environment it operates in – the Dutch government’s export licensing decisions are not optional, and ASML has been transparent that it will comply with whatever framework is set. But compliance has a cost. China represented a significant portion of ASML’s revenue during the years when DUV sales to Chinese fabs were unrestricted, and that revenue fueled R&D investment that keeps ASML ahead of any potential competitor. A smaller China business means less cash flow to fund the next generation of High-NA EUV systems – the machines that will define chipmaking at the 2nm node and below.
High-NA EUV is where the real long-term competition lives. These machines, which ASML is now beginning to deliver to leading-edge customers, cost roughly 350 million euros each and require infrastructure upgrades that most fabs are only beginning to plan for. China will not have legal access to them. TSMC, Intel, and Samsung will. That gap – between what China’s best fabs can produce and what the leading-edge fabs accessible to Western and allied companies can produce – is likely to widen rather than close over the next five years, barring a political settlement that currently has no visible path to happening.
ASML’s position in all of this is one of genuine tension that its corporate statements can only partially obscure. The company benefits from a technology monopoly that makes it irreplaceable, and it operates in a geopolitical environment where that monopoly has been conscripted into service as a policy instrument. ASML’s CEO Peter Wennink has said publicly, on multiple occasions, that China will eventually develop its own lithography tools – not immediately, but over a long enough horizon that restriction policies should be evaluated with that endpoint in mind. His argument is not that restrictions are wrong, but that they buy time rather than permanent advantage, and that the time being bought needs to be used well by the countries enforcing them. Whether the U.S., the Netherlands, and their allies are in fact using that time to build durable semiconductor capacity is a harder question than the export control headlines suggest.
