Recent years have seen increasing economic and technological separation between the United States and China, often referred to as ‘decoupling’. In a bid to restrict China’s access to sensitive technology, the United States recently introduced new export controls for semiconductor technology. It is anticipated that current US measures will persist and
potentially strengthen in pursuit of the US government’s ‘small yard, high fence’ approach.
The US is exerting pressure on the Dutch government to comply with these rules, thus
posing a challenge for the Netherlands because of its substantial economic ties with China. In 2022 alone, the Netherlands traded over 64 billion EUR worth of goods with China, of which the export of semiconductor equipment accounted for 22.4 billion EUR. For example, the Netherlands implemented export controls on ASML machines for ‘national security’ reasons, partly because of pressure from the US. Export licences are now required for certain models of chip-making equipment. The Dutch government can now stop exports to ‘specific countries’. It is clear that China was the main target of these measures, despite not being named directly. However, at the time of writing, these measures have had limited impact.
South Korean chip firms have also been caught in the fray. Similar to the Netherlands, South Korea’s heavy reliance on China as its largest trading partner has made it increasingly difficult to balance its interests. South Korea is now actively trying to reduce these dependencies, as evidenced by a significant trade deficit with China in 2023 and an increase in exports to the US. This shift in trade destinations is accompanied by a strengthening of security relations with the US, while China has shown itself willing to coerce South Korea economically into following its agenda. This coercion, however, has led South Korean firms to show increased willingness to invest in the US, despite the higher costs involved. In addition, South Korea’s semiconductor industry is receiving extensive government support and investments to enhance its global position. For example, the South Korean government has promised tax credits for research and development (R&D) spending and facility investments, alongside a significant investment fund aimed at incentivizing private investments of over 453 billion USD by 2030, and has provided infrastructure support to companies for expansion.
However, as subsidies and tax incentive programmes spread, national security rose up the political agenda. South Korea’s government, for example, passed the Special Measures Act on Strengthening and Protecting Competitiveness of National High-Tech Strategic Industry (the National High-Tech Strategic Industry Act) on 3 February 2022. This law provides tax deductions and expedites the bureaucratic processes necessary for manufacturing advanced technologies, but also places companies under further government regulations if they manufacture ‘National High Technologies’ that are important to national security.
The Dutch government has also implemented policies to support the semiconductor industry, focusing on incentivizing investment in R&D, promoting public–private partnerships, human resource development, and providing a regulatory framework that encourages companies to stay or settle in the Netherlands. According to the Dutch government’s recently formulated National Technology Strategy, semiconductors are a critical sector, leading to focused implementation of these policies in this industry. Similar to in South Korea, semiconductors are now also considered vital for national security and public interest, making them subject to additional security measures.
Recent policy shifts have, however, prompted semiconductor companies to express concerns about the Dutch government’s political direction. The government’s decision to reduce the budget for tax credits for foreign skilled workers has raised concerns about deterring foreign talent and impacting innovation in the Netherlands. Additionally, political discourse on the internationalization of higher education and protecting the Dutch language has created uncertainties about the Netherlands’ potential to continue to attract foreign students. This shift is particularly worrying for companies like ASML, where a substantial portion of employees are of foreign origin.
Similarly, South Korea faces a chronic shortage of workers in the semiconductor industry. In a bid to alleviate this shortage with foreign talent, South Korea has announced that it aims to attract 300,000 foreign students by 2027. In fact, in 2023 it enrolled 182,000 foreign exchange students. Although this fell short of the government’s target of 200,000 for 2023, it still represents a significant increase from the approximately 12,000 international students in 2001. This growth indicates success in internationalizing South Korea’s higher education institutions.
In a broader context, and with global worker shortages in the semiconductor industry, the European Union is attempting to cultivate more talent as well. The EU Chips Act, enacted in 2023, aims to enhance Europe’s independence in chip and semiconductor technology. It involves funding for R&D, investments in new chip-production capacities and monitoring markets to predict supply shortages, but it also aims to establish ‘competence centres’ to attract and educate more talent for the industry. Despite its success until recently in attracting foreign talent and international students studying technical or information technology-based (IT) career paths, the Netherlands is currently struggling with personnel shortages, particularly in the semiconductor industry.
The EU’s strategy, although falling short in certain areas, connects well with the Netherlands’ goal of alleviating these shortages. However, critics have raised concerns about the EU Chip Act’s structure, funding, strategic orientation and governance framework, especially the EU’s attempt at ‘reshoring’ the production of semiconductors. As the Netherlands’ semiconductor companies have focused on specific sectors of the industry, reshoring the complete supply chain would mean direct competition with South Korea. Following the EU’s policy, therefore, would undermine the Netherlands’ opportunities for deepening ties with South Korea.
It is important to note that South Korea and the Netherlands have complementary roles in the semiconductor industry. They compete globally for market share and revenue, but have agreed to enhance collaboration at an industrial alliance level. Additionally, South Korea has expressed its willingness to deepen collaboration with the EU on advanced semiconductor technologies. The EU’s reshoring strategy, and investing in direct competition with South Korean companies, would be detrimental to long-term cooperation. Education and personnel development are therefore crucial, as they are an area in which improved bilateral relations could help in diverting investments away from increasing competition between the Netherlands and South Korea, while simultaneously alleviating the increasing worker shortages in both countries.
Bilaterally, both the Netherlands and South Korea are heavily invested in improving their position in the semiconductor industry, indicating an alignment in political goals as well as their complementary roles in the industry. Moreover, both countries have attempted to shift away from China-based dependencies, once again showing political alignment in terms of both economic and national security goals. Both countries are, therefore, in an excellent position to deepen their ties and promote cooperation.
However, the current political climate in the Netherlands poses a significant risk. Increasing hostility towards ‘internationalization’ in higher education and removing incentives for skilled foreign talent form risks for semiconductor companies based in the Netherlands, which rely heavily on this pool of workers for their operations. It seems that current political actors in the Netherlands are overlooking the long-term risks associated with isolating Dutch higher education from international talent, thereby destabilizing the supply of skilled workers to the domestic semiconductor industry.