ASML Faces US Pressure Amid Dutch Subsidy Offer and China's Looming Market Impact

ASML (ASML.US) shares dropped by 6.47% recently. Dutch Prime Minister Mark Rutte stated that when making a decision on further restricting ASML's semiconductor equipment exports to China, the Netherlands would weigh ASML's economic interests. For the Netherlands, ASML is a crucially important innovative industry that should not suffer losses under any circumstances.

Recently, ASML has faced increasing pressure from the US to curb its business dealings with China. The company has expressed dissatisfaction with the Dutch government's inability to protect its interests and has even considered relocating. The Dutch government quickly offered $20 billion in subsidies to retain ASML.

The US has also proposed a new policy to restrict repairs for equipment sold to China, exacerbating the situation for ASML. As a global high-tech enterprise, ASML relies on its international sales to sustain its operations, and China is a significant market.

If ASML ceases after-sales and repair services for its machines, many Chinese companies may halt their operations next year. This news could lead Chinese firms to cancel orders, significantly impacting ASML's revenues. The Dutch government, meanwhile, is also facing potential financial losses due to halted services.

Despite being a NATO member, the Netherlands does not easily succumb to US demands, especially when significant economic interests are at stake. ASML has always viewed China as an essential customer, not a threat.

In 2023, ASML earned $50 billion from Chinese manufacturers, with China's demand for lithography machines being second only to South Korea. ASML had anticipated that China would eventually surpass South Korea in the market.

However, US pressure continues, prompting the Dutch government to announce various "face-saving" measures to appease the US, such as stating export restrictions but later approving many orders. Earlier this year, the then Dutch caretaker cabinet Prime Minister Mark Rutte visited China to discuss lithography machine deals, assuring China of continued business relations despite certain export restrictions.

ASML has openly criticized the US for imposing restrictions only on non-American companies while allowing its own firms to continue profiting from Chinese sales. Back in 2019, the US began pressuring ASML to limit its dealings with China.

With a new Dutch Prime Minister now in office, balancing US-Dutch relations and economic interests with China remains a challenge. The Dutch Prime Minister has expressed that his primary obligation is to protect the interests of Dutch high-tech firms.

Currently, Dutch officials are in talks with the US and Japan to reach a favorable outcome. It remains to be seen whether these negotiations will lead to relaxed restrictions or economic compensation for the Netherlands.