European chip giant suffers from ‘Dutch disease’

ASML Holding NV may have contracted Dutch disease, a virus that causes collateral economic damage due to a significant increase in revenues from a new industry with high global demand and that occurs when a manufacturing sector paradoxically dies of success. The term was introduced in the sixties, precisely in the Netherlands, after the discovery of natural gas fields in Slochteren, near the North Sea, which led to a revaluation of the guilder to such a level that it not only undermined the exchange rate relationship, but also with the German mark, but as a result seriously damaged the competitiveness of Dutch non-energy exports.

The symptoms of that time seem to be showing up now in his integrated circuit company, which has risen to the top top ten global technology firms. ASML has sent a serious acknowledgment of receipt to the current government in The Hague to alert it of its intention to move its manufacturing headquarters to neighboring France.

Ironically, in one of the European markets that most intensively promotes tax holidays for foreign companies such as Ferrovial, with its model of tax dumping and the permissiveness of the stock market with financial engineering.

Following this declaration of intent, ASML notes a “deteriorating political climate” in the country, which has been left without executive power since elections at the end of last November, in which the nationalist-populist Party for Freedom (PVV, in Dutch) won Geert Wilders, who just admitted that he lacked the support to become prime minister. Lionel Laurent, columnist Bloombergpoints out that this move announcement is a “strange case of Dutch disease” related to the stock market explosion of semiconductor companies and, above all, assets related to artificial intelligence (AI).

These phenomena – he clarifies – “cause strong convulsions in the flows of goods and global services and changes in the methodology of both bilateral and multilateral trade agreements”, in addition to the “reorganization of sectors” through protectionist prescriptions and subsidies aimed at “guaranteeing production and supplies of raw materials and necessary industrial materials.

Loss of attractiveness of the Netherlands as a business center

The ASML announcement has left the Netherlands in a state of panic and Europe on high alert for the effects of this altitude sickness. Because an alarming competition has taken root between regional centers – in this case between the Dutch and French business centers – to attract capital flows and grant professional visas to highly skilled workers.

French President Emmanuel Macron is breathing a sigh of relief at the greater receptivity and priority the semiconductor group appears to be giving to its pro-business reforms and manufacturing subsidies after months of labor protests across France. Among other reasons, because ASML criticizes the restrictions on tax benefits that foreign workers in the Netherlands have enjoyed so far and the rise of hostility towards immigrants – a direct message to the far-right doctrine, with which Marine Le Pen’s National Front also agrees – and the choice as the destiny of the nation , which was the first to establish a 35-hour work week in the EU.

The French award is not banal. ASML is talking about moving its 23,000-strong workforce to French soil.

On the other hand, the punishment for the Netherlands is quite severe. Essentially, because its market is considered a neoliberal bastion of the euro zone after Mark Rutte’s thirteen years at the head of the cabinets of a broad coalition of parties, in which he emphasized its status as a fiscal, corporate and financial haven in the euro area.

Ability to attract investment and attract corporate headquarters in the Netherlands – and its leadership role hub companies – have strengthened since Brexit. Businesses fleeing the city have chosen Amsterdam as one of the destinations with the greatest cultural proximity to the city British business in the domestic market. Perhaps that’s why ASML’s hypothetical jump to France is all the more surprising, with an economy that, according to liberal parlance, operates with labor laws that are too restrictive and as far away as Holland from its main customers: the US and several Asian countries.

‘The separation between markets and the economy is in plain sight

Moreover, in the midst of a competitive race with rivals such as California-based Nvidia or Taiwan’s TSMC, which are participating in exciting promotions and benefiting from the capitalization of powerful big technologies. This behavior led to another kind junction -or fragmentation- between booming capital markets and anemic economies, with indicators like the DAX, they fix the paths Red numbers.

He boom of technological and industrial assets related to chips or artificial intelligence is justified by the decrease in productivity in the markets and by famous people such as Bill Gates or Sam Altman, the founder of Open AI, the firm that owns Chat GPT.

ASML demonstrates the strength of the stock market: it accounts for 20% of the value of the Dutch stock market, 10% of call capitalization blue chips -or traditional European companies- or 2.5% of MSCI, the global technology index. Likewise, it exports inflationary pressures. In some sectors of the economy, due to the intensity of production centers, which are already atrophying value chains due to rising prices of raw materials and production costs. Meanwhile, mass hiring of factory workers contributed to a sharp rise in housing prices by at least 65% over the past five years.

In the euro zone, there are fears that the contagion of the Dutch ASML syndrome could spawn a new inflationary spiral and prompt the ECB to accelerate rate cuts.

As if that were not enough, in the liberal ranks of the retired Rutte – whom they call the presumptive future secretary general of NATO – they point to his country’s multi-ethnicity as the reason for his party’s loss of social support due to another phenomenon that resembles the golden age. the age of Groningen’s gas fields half a century ago. As was the case with powerhouses then, today’s big tech companies — and ASML is no exception — concentrate more than a significant portion of job creation.

Although in this case, the set of talents and technical and professional skills comes from abroad. At least 40% of his employees do not have a Dutch passport, a problem Wilders has been able to exploit in his campaign, opposing globalization and appealing to foreign students who benefit from the Dutch academic system.

The US seeks to protect its industry in trade agreements

Those concerns about the collateral damage that cases of Dutch disease could cause in companies and sectors have been under scrutiny by the White House for some time, warns Peter Harrell, a researcher at the Carnegie Endowment for International Peace. The analyst emphasizes the convenience of Washington conducting a general and urgent review of its agreements on the free trade zone in this direction, which, according to him, “surprisingly, achieves a certain consensus between the two presidential candidates.”

But above all, says Harrell, this conceptual shift to include sectoral requirements in a free trade agreement “is an extremely effective tool for building geopolitical coalitions” and a “competitive weapon against China” that will add to the future prosperity of the United States. Because with no new trade deals since the start of the post-Covid cycle, transnational trade has slowed and value chains are more at risk than ever.

Negotiate new rules, rates and subsidies to guarantee, for example, the energy transition or the digital economy, but also in the health and medical business, which was important during the pandemic or in the reconfiguration of production structures or the relocation of chip factories. All this requires a revision of agreements, a constant debate between unions and managers about setting rates and with social layers that contribute to the fight against the climate.

Focused on specific sectors, this reorganization will “increase trade, end the fruitless clash between economics and geopolitics, and create new opportunities to resolve global conflicts.” As long as “incentives are calibrated with creativity and precision,” warns Harrell, for whom, “betting on this initiative, whoever will be the future tenant of the White House will align the commercial and investment power of the United States with its geopolitical interests.”