Volkswagen warned workers at its Wolfsburg plant this week that it would suspend production of the Golf from next Wednesday because it was running out of some essential microchips. Made by Nexperia, a Chinese-owned company based in the Netherlands, the chips are not the most advanced but they are responsible for keeping the brakes, lights, switches and wipers working.
The Dutch government took control of Nexperia, using for the first time a law introduced during the 1950s that allows the state to seize companies for national security reasons, removing its Chinese owner as chief executive. They said they were worried about a possible transfer of technology from the Netherlands to Nexperia’s Chinese parent company and “would become unavailable in an emergency”.
The decision came a day after the United States expanded its blacklist of Chinese companies to include European subsidiaries of sanctioned firms. Dutch court documents showed that Washington had put pressure on The Hague to remove the Chinese owner in order to keep Nexperia’s Dutch operations off the sanctions list.
“The fact that the company’s CEO is still the same Chinese owner is problematic,” the documents said, citing minutes of a meeting in June between the US commerce department and the Dutch foreign ministry.
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“It is almost certain the CEO will have to be replaced to qualify for the exemption from the entity list.”
Beijing’s response was to ban the export of microchips from Nexperia’s operations and subcontractors in China, which finish and package most of the chips made in Europe. Most car companies have only a few weeks’ supply of the chips, so factories across Europe will soon follow Wolfsburg in halting production unless the dispute is settled.
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“The situation could lead to considerable production restrictions in the near future, and possibly even to production stoppages if the interruption in the supply of Nexperia chips cannot be rectified in the short term,” Hilda Mueller, head of Germany’s car industry association the VDA, said this week.
China’s minister of commerce Wang Wentao and Dutch economic affairs minister Vincent Karremans spoke by phone on Tuesday and both sides said they would seek “a solution that serves the interests of Nexperia, the European economy and the Chinese economy”. But the affair highlights the dilemma faced not just by the Netherlands but by the EU as a whole as they find themselves caught in the crossfire of the US trade war with China.
The Dutch move on Nexperia was just the latest in a succession of actions by European governments and the commission which have served Washington’s interests rather than their own. In many cases, such as export controls on advanced technology or excluding Huawei from their telecoms networks, they have invoked national security.
The European Union has substantive trade issues with China, which have already wiped out many European renewable energy companies and could do the same with the car industry. And European companies are right when they complain that they are not allowed to operate on a level playing field in the Chinese market.
After Donald Trump returned to the White House this year, China launched a charm offensive, presenting itself as a more reliable partner that shared Europe’s commitment to free trade. But EU officials complain that Beijing has failed to follow through with concessions on any of their current trade disputes.
European companies have been left waiting for months for export certificates for rare earth minerals after China introduced restrictions chiefly aimed at the US. And if the trade war between Beijing and Washington escalates, Europe could suffer further collateral damage.
In advance of next week’s expected meeting between Trump and Xi Jinping in South Korea, China is making clear that it wants the easing of export controls to be part of any deal. And if the US continues to restrict China’s access to advanced technology, Beijing will retaliate by paralysing manufacturing supply chains in the West by restricting rare earth products.
Both China Daily and Global Times, China’s two main outward-facing state-run dailies, ran editorials on Thursday about the Nexperia dispute.
“The root causes of China-EU trade tensions lie in two trends: the overextension of the concept of ‘national security’, and the erosion of contractual spirit and market principles. In essence, the overextension of the concept of security is replacing economic logic with political logic. When normal commercial products such as rare earths, semiconductors, and EVs are labelled ‘security threats’, the space for international trade and co-operation narrows dramatically,” Global Times said.
“Development constitutes the greatest security; stagnation represents the greatest vulnerability. China’s experience over more than four decades of reform and opening-up demonstrates that only through sustained development and enhanced comprehensive national strength can national security be fundamentally safeguarded.”
