Japan wants to participate with America and the Netherlands in export controls for important technology with which chips are produced. The country is the market leader in the industry alongside the Netherlands. Export controls were therefore high on the agenda during the trade mission of Minister Schreinemacher (VVD, Foreign Trade) to Japan.
Despite the promise, the Japanese government has not yet announced concrete measures, fearing that strict measures will lead to a trade war with China, Japan’s largest trading partner.
US President Biden recently introduced a series of measures aimed at attracting chip production to the US and trying to deprive China of access to the latest technology. To do this, market leaders Japan and the Netherlands must participate.
“The US is packaging it as a problem of national security and protecting sensitive technology, putting pressure on Japan and the Netherlands,” says June Park, a political economist specializing in trade relations. “But there is also a commercial reason behind it.”
Japan as market leader
According to research from the Peterson Institute, Japan leads the chip industry in producing machine parts, with a market share of over 28 percent. “ASML is ahead of the rest of the world when it comes to lithography, but Japan leads the market in other parts of the manufacturing process, such as etching, testing and chip packaging. The US has almost nothing to say there now, but there Do they want something to say?”
Until the end of the last century, the global chip industry was dominated by Japanese companies, with a peak market share of more than 50 percent. In photolithography, a technique that is essential in the production process, Canon and Nikon were by far the market leaders, with more than three-quarters of the world market.
This changed when the Dutch ASML overtook them through technological innovation. Over the past thirty years, the domestic chip industry has also increasingly moved to other Asian countries, such as Taiwan and South Korea. Yet Japan is still one of the major players when it comes to chip etching, testing and packaging.
The Japanese government has introduced a national strategy in 2021 to revive the industry. Large grants have been made available to companies to revise production chains and restart domestic production. With this step, the country hopes to reduce its dependence on foreign countries.
Trade war risk
Introducing export controls would therefore be painful now, just as the industry is trying to recover. The Japanese chip industry is currently led by a number of large players, whose sales market is largely in China, such as Tokyo Electron (25 percent) and Renesas (29 percent). In addition, Japan gets more than 60 percent of the rare raw materials needed in the chip industry from China.
“China still has access to the latest generation of chips, but if that access is completely denied, it could lead to problems,” says Park. “For Japan, it is likely that sanctions will follow from China, not only within the chip sector but across the entire market.” China is Japan’s largest trading partner: “Going full throttle with US export controls would be a step towards a full-scale trade war.”
Trade mission to Tokyo
Although Japan has indicated that it will cooperate with the export controls, it is not really clear which technologies and products will be subject to this. Companies do not want to say anything about the possible consequences.
It is essential for the Netherlands that Japan cooperates. If the countries do not cooperate, there is a good chance that sensitive production technology will end up in unwanted hands. Partly for this reason, Schreinemacher now visited Tokyo.
“We announced last week that we are taking measures, and the Japanese Minister of Trade explicitly stated in our conversation that economic security is important to him and that we should continue to discuss this,” she says.
However, concrete commitments have not been made. Schreinemacher: “It is possible that Japanese companies can circumvent new export controls, but that is why we must continue to talk to our Japanese partners.”
“Current US export controls are just a first step. More are likely to come,” warns Park. That is why Japan seems to be extra cautious. “I expect that the cabinet will gradually introduce export controls, hoping not to anger China and at the same time to keep the US and the Netherlands happy.”
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