By Aakansha Malia 5:05 pm PST

In yet another setback for China, Japan and the Netherlands have come closer to joining the United States in imposing a ban on exporting Chinese manufacturing chips. The first outright mention of the ‘deal’ was made by Don Graves, deputy commerce department secretary of the U.S, on the sidelines of an event in Washington on Jan. 31. Graves said, ”We can’t talk about the deal right now. But you can certainly talk to our friends in Japan and the Netherlands.” Bloomberg reported earlier that Dutch PM Mark Rutte hinted towards the gradual progress in the deal and said he’s very confident that the countries will reach there. “I think that step-by-step we will be able to reach a good outcome in cooperation,” Rutte said in an interview with the Dutch TV program Nieuwsuur on Jan. 17.

The latest news by Bloomberg regarding the deal came on Jan. 27, suggesting both Japan and the Netherlands have finalized the agreement with the United States. However, there are no plans for a public announcement of the restrictions on China. Officials from the Netherlands and Japan were present in Washington on Jan. 27 to discuss a wide range of issues in talks led by White House national security adviser Jake Sullivan. John Kirby, a spokesperson for the White House National Security Council, also confirmed that the safety and security of emerging technologies were on the agenda of talks.

The Biden administration-led agreement aims to restrict chip machinery and technology exports to China. According to experts, the efforts by the United States to forge this powerful alliance will undercut Beijing’s ambitions to build its domestic chip capabilities. Beijing’s semiconductor industry has been on the U.S.’s hitlist as China still relies on foreign-made equipment for its fabrication plants. The Netherlands and Japan will target two separate chips. The former will expand restrictions on ASML HOLDING LV, preventing China from selling deep ultraviolet lithography machines. These are crucial to making advanced chips and setting up production lines. Japan will set similar limits on Nikon Corp. According to Bloomberg, if ASML is pulled within the confines of such an agreement, it could impede China’s plans to expand the capacity of plants handling mature technology nodes.

In October 2022, Washington imposed sweeping controls over companies, preventing them from selling chips, chip-making equipment, and U.S. tech software to China. U.S. citizens were also barred from supporting the production of chips in Chinese factories. In response to this, Beijing filed a suit against Washington in World Trade Organisation on Dec. 12 over chip export controls calling the policy ‘trade protectionism.’ The question is whether China can retaliate. Experts believe that withdrawing goods or services, or imposing export controls, could do more damage than good when China’s economy is facing a severe slowdown. Meanwhile, experts believe China will double down on investment and support for its domestic chip-making industry.