US and European restrictions on technology exports to China may slow Beijing’s progress in artificial intelligence and semiconductors in the short term. But experts warn that the same policies could ultimately push China to develop more of its own technology, creating a stronger competitor for the West.
The quiet town of Veldhoven in the south of the Netherlands hardly looks like a frontline in the growing geoeconomic rivalry between the United States and China.
Yet thousands of employees commute there from nearby Eindhoven, and the town is home to one of the world’s most important technology companies: ASML.
The Dutch company manufactures the photolithography machines used to produce some of the world’s most advanced semiconductors. The machines allow chipmakers to print intricate circuit patterns onto silicon wafers.
Taiwan’s TSMC, South Korea’s Samsung and Intel are among the world’s leading chipmakers that rely on ASML’s extreme ultraviolet (EUV) lithography systems to manufacture their most advanced chips.
Other companies produce deep ultraviolet (DUV) machines used for less sophisticated semiconductors. But when it comes to EUV technology, ASML is the world’s only supplier.
That makes the Dutch technology giant an unavoidable part of the supply chain for companies producing the advanced chips at the heart of the global AI race.
ASML sales to China come under pressure
US pressure on ASML began during Donald Trump’s first presidency. The policy continued under Joe Biden and has remained in place since Trump returned to office.
Under pressure from Washington, the Dutch government gradually tightened restrictions on ASML’s sales of semiconductor equipment to China. EUV machines were restricted first, followed by increasingly stringent controls on more advanced DUV systems.
But reports last month that China had begun producing its own DUV machines sent ASML shares sharply lower and raised concerns among geopolitical strategists in Washington.
China’s lithography industry remains roughly a decade behind ASML. But given that the Dutch company began with a technological lead of around 40 years, signs that Beijing is narrowing the gap are attracting attention.
The history of technology embargoes
None of this is entirely new.
Looking back through economic and technological history, attempts by countries to prevent strategic technologies from reaching rivals go back to the Industrial Revolution.
Britain gained a significant economic advantage during the Industrial Revolution and introduced laws designed to prevent the export of critical machinery. The government even restricted skilled workers from taking their technical knowledge abroad.
But the information blockade was never completely successful.
One of the best-known examples was Samuel Slater. Born in Derbyshire in 1768, Slater began working in a cotton mill at the age of 10. He eventually became an expert in water-powered machinery that was transforming the textile industry.
At 21, he left Britain for the United States. In 1793, he established a factory in New England based heavily on British technology, while also copying and adapting British manufacturing and management techniques.
When US President Andrew Jackson visited one of Slater’s factories in the 1830s, he described him as the “father of the American factory system”. In Britain, meanwhile, Slater became known as “Slater the traitor”.
Technology finds a way across borders
Britain’s technology blockade was never completely airtight.
The water-frame technology that Slater took to the United States, for example, had entered use in Britain in 1769. Yet similar machinery appeared in France by 1779 and in the Netherlands by 1785.
At least 1,000 British craftsmen are believed to have travelled to France between 1710 and 1800.
Britain eventually changed course. Laws restricting workers from emigrating were repealed in the mid-1820s, while restrictions on machinery exports were completely removed in the 1840s.
British manufacturers then increasingly chose to sell their technology abroad rather than keep it secret. As free trade expanded, restricting the international spread of technology became increasingly difficult.
Economic historians broadly agree that while Britain failed to prevent technology transfer altogether, its restrictions did delay the ability of rival countries to copy British innovations.
The Cold War produced a similar pattern
Western efforts to restrict technology transfers became even more extensive during the Cold War.
From the late 1940s onwards, the United States and other Western economies sought not only to prevent military technology from reaching the Soviet Union and its allies, but also restricted exports of a wide range of industrial goods and manufacturing processes, particularly in computing and semiconductors.
Alternative routes were nevertheless found.
Some technologies reached the Soviet Union through third or even fourth countries, while industrial espionage also played a role.
Research suggests that Western technology embargoes were among the factors that constrained productivity growth in the Soviet Union and Eastern Bloc countries during the 1960s, 1970s and 1980s.
These historical examples point to a broader lesson: permanently preventing technology from crossing borders is extremely difficult.
But what trade economists call “frictions” can still delay technology transfers for years or even decades.
The real question is how China responds
The key question in China’s case, therefore, may not be whether technology restrictions work, but how Beijing responds to them.
Studies examining US technology export restrictions on China during the 2000s and 2010s suggest that such geoeconomic measures can be effective in the short term. Imports of restricted products fall significantly.
Over the medium term, however, the picture changes.
When Western companies are prevented from selling a critical component or piece of machinery to China, Chinese companies tend to increase their research and development spending and file more patents.
In other words, technology restrictions can limit China’s capabilities in the short term while simultaneously encouraging the country to develop domestic alternatives over time.
A strategic dilemma for the West
The ASML case illustrates that dilemma particularly clearly.
Preventing ASML from supplying China with advanced machinery is likely to slow Beijing’s progress in the AI race. But the same policy also gives China a powerful incentive to develop its own lithography technology.
In the long run, that could leave the West facing a more independent and technologically capable Chinese semiconductor and AI industry.
For Washington and European capitals, the central challenge is therefore not simply how much they can slow China’s technological rise. It is whether doing so could ultimately encourage Beijing to build its own capabilities even faster.
Veldhoven may be one of the largely unseen frontlines of the US-China rivalry.
But the battle being fought there is about far more than which country can buy a handful of machines.
It could help determine who holds the greater influence over the semiconductor and artificial intelligence technologies that will shape the next generation of the global economy.
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