Europe faces a computer chip shortage, and China holds the cards: Lionel Laurent

Key topics:Dutch seize Nexperia amid China-US tech and chip tensions.Europe fears chip shortages due to political, not market, risks.EU urged to diversify supply and reduce reliance on China..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Lionel Laurent.The Senkaku Paradox describes how small stakes can lead to big conflicts at a time of great-power rivalry. While the term’s origins lie in military warfare, it can also be applied to the escalating economic standoff between the Netherlands and China over microchip firm Nexperia. The mounting risk of a chip shortage triggered by politics, rather than disease or armed conflict, should be a warning for Europe to deal with its big trade-war vulnerabilities.Last week, the Dutch government seized control of Netherlands-based, Chinese-owned Nexperia, invoking a Cold War-era law designed to secure access to critical goods in an emergency. The supplies in question are fairly low-tech, such as transistors and diodes, but they’re critical for everything from cars to medical devices — and Nexperia accounts for 10% of the global market. The justification for this bold but risky move was evidence of conflicts of interest and attempted shifting of assets by Chinese parent Wingtech Technology Co. Ltd., as laid out in court filings..Read more:.Trump bans Nvidia's H20 chip in China, costing billions in AI tech clash.If this law is being applied for the first time, however, it’s because of a geopolitical context that’s impossible to ignore. Chips are no ordinary export and Wingtech was included on a US trade blacklist at the end of last year. American officials even made it clear to the Hague back in June that Nexperia’s Chinese chief executive officer would have to be replaced. It wouldn’t be the first instance of American pressure on Dutch technology, with ASML Holding NV’s cutting-edge chipmaking machines already subject to US-led export controls..The speed of the move also shows the scale of panic inside Europe over dependence on China for rearmament and reindustrialization — and regret for having signed off on billions in asset sales to China (including Nexperia) over the past decade. Beijing accounts for one-third of mainstream chip supplies; it also mines about 60% and processes about 90% of the world’s rare-earth metals, critical components for electric cars and fighter jets. Nexperia’s seizure came days after China upped rare-earth export curbs, ostensibly aimed at the US but also hitting Europe.The Catch-22 here is that confronting dependence comes at a cost, in this case retaliatory curbs from Beijing on shipping product overseas from Nexperia's China factories that have prompted European automakers to warn about shortages. What was supposed to preserve Nexperia’s value and customer access has made both look fragile. European players including Volkswagen AG and Robert Bosch GmbH are now scrambling to find alternative sources for chips. The Dutch government has also inherited a corporate puzzle: Nexperia is too Chinese for the Dutch, too Dutch for the Chinese and too politically sensitive to be easily sold to a new owner — recall that Chinese regulators blocked the sale of its former parent NXP Semiconductors NV to US-based Qualcomm Inc. in 2018.In the short term, we can expect pressure from Brussels technocrats and industry lobbies to defuse the situation. Good luck with that. Dutch parliamentary elections are just days away, and this is an emotive issue for a country that waved through the sale of Nexperia in 2016 during more innocent — or naive — times. At the same time, China has clearly decided that Europe is fair game for a more hardball approach.But in the longer term, Europe has to find more sustainable ways of dealing with critical dependencies. Just as it’s vulnerable to knife-twisting from the Trump administration given its reliance on US defense and tech firms, it’s also done too little to de-risk supply chains from a more assertive China. Industrial-policy plans in chips and batteries have lacked confidence and cash. The EU is widely expected to miss its target of doubling its share of chip production to 20% by 2030; the scars of failed Swedish battery startup Northvolt AB, meanwhile, are still visible..Read more:. Nations race for control as computer chip manufacturing has become the new geopolitical arms race.There will have to be a mix of responses: More diversification of supply, more investment at home and more measures to address artificially cheap imports such as tariffs on electric cars or steel. Billions in new budget allocations to defense spending should be committed to breaking China’s supply chain chokehold on critical raw materials, says Joris Teer of the European Union Institute for Security Studies. More unity among European member states, and more leadership from Berlin, will also be essential.Let’s hope Nexperia serves as a warning of what to avoid rather than a taste of things to come..© 2025 Bloomberg L.P.

Europe faces a computer chip shortage, and China holds the cards: Lionel Laurent

Related Stories

Jim Chanos has a warning for SpaceX investors — and his track record demands attention

Jim O'Neill on BizNews asking the question markets don't want to answer

Nvidia launches 'superchip' to reinvent Windows PCs - big challenge to Apple, Intel

AI bubble: Big tech hyperscalers have a serious chip inflation problem