China’s chipmaking efforts could take a hit from a US ally

ASML based in the Netherlands ASML makes some of the world’s most advanced chip-making equipment – and could soon lose business in one of its most important markets.

It appears that the Dutch government under Prime Minister Dick Schoof does not intend to renew certain licenses at the end of the year for ASML. ASML to repair cars and supply spare parts for customers in China. This is expected to impact ASML machines with deep ultraviolet lithography, or DUV, Bloomberg reportedciting anonymous people familiar with the matter. The company’s advanced chip-making machines come with maintenance agreements to keep them running, and limiting ASML’s ability to repair the machines could leave some of them inoperable until next year, according to Bloomberg.

Huawei and Semiconductor Manufacturing International Corp. (SMIC) based in China depend on ASML’s DUV lithography machines to make advanced chips. Almost half of ASML earnings for the second quarter from sales to ChinaBloomberg reported. The country has been unable to build a similar version of ASML equipment, and China cannot buy the extreme ultraviolet, or EUV, ASML machines that are used to make the world’s most advanced chips used by Nvidia. NVDA and Apple AAPL.

Under former Dutch Prime Minister Mark Rutte, the Netherlands strongly resisted US demands to increase trade restrictions on China, but Schoof told Bloomberg that his government has “good negotiations” with the US and Japan on export controls. The Dutch Ministry of Foreign Affairs and ASML declined to comment.

Meanwhile, the US appears to be considering tougher trade rules whether allies, including the Netherlands and Japan, will continue to sell chip tech to China. The Biden administration is reportedly debating using an export control called the direct foreign product rulewhich does not allow the export of any goods to any country if manufactured with a certain percentage of US intellectual property components.