War Over Chips: How a Dutch Takeover Sent Shockwaves Through the Global Automotive Supply Chain

In September, the Dutch government invoked a Cold War-era law to take over Nexperia, a Chinese-owned chip manufacturer with significant operations in the Netherlands. This controversial decision ignited a series of tensions between China and the Netherlands and unleashed turmoil within the already struggling global automotive industry, reeling from US tariffs and Chinese export restrictions on rare earth materials.

The Dutch economic minister described the action as necessary to address serious governance issues at Nexperia that posed a threat to the European economy’s supply chains. In retaliation, China imposed export controls, halting shipments of Nexperia chips while the Dutch government froze vital supply shipments to China. This disruption underscored the automotive sector’s vulnerabilities, revealing its heavy reliance on critical semiconductors produced by Nexperia, which manufactures essential components for vehicles, including power steering and airbag systems.

Nexperia’s chips constitute key pieces of the semiconductor ecosystem, with 70-80% of its output routed to China for further processing, making car manufacturers increasingly reliant on Chinese supply chains. Industry expert Bill Bishop pointed out that companies should rethink their supply management strategies in light of this dependency, exacerbated by experiences during the COVID-19 pandemic. This dispute emerges as China’s leverage grows over global supply chains, reminiscent of past tensions surrounding critical minerals and the West’s reliance on Chinese manufacturing.

The diplomatic strife also reflects a broader narrative about economic ties between China and Europe, especially as the EU grapples with managing its relationships amid rising tensions with the US. Chinese authorities expressed strong disapproval over the takeover, urging the Netherlands to reverse its decision, thereby complicating the geopolitical landscape further.

Additionally, issues around the leadership of Nexperia intensified the situation, with concerns raised by US officials about the company management’s ties to the Chinese government. The Dutch authorities insist that their decision was independent and not influenced by foreign pressures, citing evidence of production and intellectual property risks.

The circumstances surrounding Nexperia highlight the realities of economic decoupling between China and the West at the corporate level, reflecting the complexity and high stakes of global supply chains. Despite the potential for rival companies to fill the gap left by Nexperia, experts warn of the challenges and costs involved in such transitions, as legacy components are often tailor-made for specific automotive applications.

As murmurs grow of a fragile trade truce between the US and China, the Nexperia situation complicates European Union efforts to ensure stable semiconductor supplies. Ongoing negotiations are set to address issues of export controls and the future of chip production amid persistent tensions—underscoring that ties between the EU and China remain precarious, especially during times of global economic uncertainty.