New US-Japan-Netherlands Pact Tightens Chip Tech Controls on China, Pressuring Canadian Industry

WASHINGTON, D.C. – In a significant escalation of the global technology rivalry, the United States, Japan, and the Netherlands have formalized a trilateral pact to restrict China's access to advanced semiconductor manufacturing equipment. The agreement, announced after months of quiet negotiations, creates a unified front among the world's top producers of critical chip-making technology, aiming to stifle Beijing's ambitions in artificial intelligence and advanced military applications.

The coordinated controls target the export of not only the most advanced extreme ultraviolet (EUV) lithography machines, for which Dutch firm ASML holds a monopoly, but also sophisticated deep ultraviolet (DUV) lithography systems, etching equipment, and deposition tools produced by companies like Japan's Tokyo Electron and Nikon. Crucially, the agreement is also expected to cover the servicing and maintenance of equipment already installed in Chinese fabrication plants, a move designed to degrade China's existing capabilities over time.

This pact builds upon unilateral restrictions imposed by the U.S. Commerce Department in October 2022, which aimed to cut China off from certain semiconductor chips made anywhere in the world with U.S. tools. By bringing the Netherlands and Japan into a formal accord, the Biden administration closes critical loopholes that had allowed Chinese firms to continue sourcing high-end equipment from non-U.S. suppliers.

The Canadian Conundrum

The announcement sends immediate ripples across the globe, placing allies like Canada in a precarious position. While Canada is not a manufacturer of the high-end lithography equipment at the heart of the deal, its technology sector is deeply integrated with the U.S. economy, and the federal government is under increasing pressure to align with Washington's hard-line stance on technology security.

Ottawa has already taken steps to secure its technological flank. The announcement of the new trilateral pact adds a profound sense of urgency to Canada's recently unveiled National Critical Technology Strategy, a policy framework designed to bolster domestic capabilities in semiconductors, AI, and quantum computing. The strategy, which was seen as a foundational step towards tech sovereignty, must now be implemented in a much more contested and fragmented global environment.

Furthermore, the Canadian government has previously signaled its commitment to working with allies on this issue. Earlier this year, Canada joined a US-led alliance to secure the global semiconductor supply chain, a move that was broadly supported by domestic industry. However, this new pact represents a far more aggressive and targeted phase of that effort, shifting from supply chain resilience to active technological containment.

Industry and Expert Reactions

Reaction from Canada's technology sector has been one of cautious concern. While many leaders understand the national security rationale, they also fear the economic fallout. "We are caught between a rock and a hard place," said a senior executive at a Toronto-based AI hardware firm, who spoke on the condition of anonymity. "Our supply chains for certain components and rare earth materials are tied to Asia, including China. At the same time, our largest market and most important partners are in the United States. Navigating these new restrictions without disrupting our own growth will be a monumental challenge."

Experts warn that Canada must move quickly to define its position. "The era of playing both sides is over," stated Dr. Alistair Finch, a senior fellow at the Centre for International Governance Innovation. "This pact solidifies the 'small yard, high fence' approach championed by Washington. Canada will have to decide whether it is inside the fence or outside. This has implications not just for export controls, but for research collaboration, data governance, and investment screening."

The direct impact will be felt by Canadian companies involved in semiconductor design, compound semiconductors, and advanced packaging—niche areas where Canada has developed expertise. These firms may face new compliance burdens and restrictions on who they can sell to or partner with, potentially limiting their global market access.

China's Response and What Comes Next

Beijing has vehemently condemned the agreement, labeling it "technological terrorism" and a violation of international trade rules. Chinese officials have vowed to take all necessary measures to protect the country's legitimate rights and interests. This raises the spectre of retaliatory tariffs or trade actions against the U.S., Japan, the Netherlands, and any other country that aligns with the pact. Canada, which has previously been the target of Chinese economic coercion, is particularly vulnerable.

In the long term, the restrictions are expected to accelerate China's drive for technological self-sufficiency. Beijing is pouring hundreds of billions of dollars into its domestic semiconductor industry to close the gap with the West. While it remains years, if not decades, behind in key areas like lithography, this concerted push could eventually reshape the global market.

For Canada, the path forward is complex. The federal government in Ottawa has yet to issue a formal statement, with officials from Global Affairs and Innovation, Science and Economic Development (ISED) Canada saying they are "closely studying the implications of the agreement." The decision they make will have lasting consequences, forcing a choice between security alignment with its closest ally and the economic realities of a globalized technology ecosystem. The outcome will undoubtedly shape the future of Canadian innovation for years to come.