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Increasing the barrier makes us jump higher

Engagement Manager

How regulating to stymie innovation can end up accelerating it

Dutch ASML is currently one of the most important companies in the world. They make the lithography equipment necessary to manufacture high power microchips for the most advanced applications, from high power computing including AI, to advanced defense applications.

The extreme ultraviolet (EUV) machines that ASML produce take a drop of liquid tin, pulses it with a high-powered laser which creates a very high energy emission of light which is then concentrated to cut patterns into silicon chips. In this game, the objective is to be able to make smaller and smaller wavelengths of light, hence the name “extreme” UV allowing you to get more computational power from a single chip. ASML’s competitors have tried for years to make these machines, and all have failed. Any technology this advanced is almost indistinguishable from magic, and thus this cost of this magic comes in at €200 million a machine.

Recently the USA and EU have begun enforcing restrictions on the sale of these machines to mainland China as part of the broader efforts to decouple the East-West supply chains of critical products and materials. From the perspective of the USA, this may seem a prudent move to limit the availability of the most advanced chips from what is viewed in Washington as an increasing problematic country. This validity of this approach needs to be questioned and takes limited historical precedence into account.

If we look at the necessary trade embargos placed on South Africa during apartheid (which Mandela attributed to being one of the leading factors to bring the regime to an end), there were a few other unintended technological consequences. As trade embargos were implemented, South Africa was struggling to purchase liquid fuels. The country did have an abundance of coal however, which it converted into liquid fuels via developing multiple technologies in gasification, fluidized beds, and multiple new catalysts. They had developed the coal-to-liquid fuel technology at a small scale before the embargos, but once the embargoes kicked in, they invested massively in R&D and scale up of new technology to make more fuels. Sasol’s Secunda coal to liquid fuels plant still runs to this day and is one of the largest single sources of CO2 emissions on any industrial site in the world.

Chinese companies have recently started using particle accelerators (the giant underground donut shaped machines like CERN on the Swiss French boarder) as a source of the very small high energy wavelength light required for lithography. The light that comes from these particle accelerators enables an even smaller wavelength and thus even more computational power per chip that what ASML can deliver. This technique is very much in its infancy, and Chinese companies may have investigated this irrespective of sanctions, and I am sure that the USA and Europe will investigate in response if they weren’t already. The point remains however that making the race more difficult might give you an edge for now, but in the long run however competition will increase.