The Nexperia Crisis Shows Why Export Controls Need Allied Coordination

Nexperia, a Dutch semiconductor manufacturer, is not the kind of chip company that winds up in the headlines. With the world swept up in the mania of Nvidia, Taiwan Semiconductor Manufacturing Company, and the future of high-end artificial intelligence (AI) chips, legacy semiconductors rarely garner much attention. Yet in October 2025, the Chinese Ministry of Commerce announced restrictions on Nexperia chips—likely in response to changes in U.S. export control policy—sparking chaos in Europe’s automotive industry. Both Volvo and Volkswagen warned of imminent factory closures. Although China has since resumed some chip shipments, European carmakers did not find a workaround to the resulting chip shortage until January 2026.

The Nexperia standoff was yet another example of how Beijing has exerted technological influence over its European trading partners by controlling just one chokepoint in the production of legacy technologies. But the United States has a major stake in this vulnerability too: If China’s share of global foundational chip markets continues to grow, it will add a new weapon to its economic arsenal, one that could cripple dozens of industries worldwide and severely undermine the efficacy of U.S. export controls in the event of another trade war or military confrontation. With the immediate effects of the crisis subsiding, the Dutch and the U.S. have an opportunity to reevaluate their strategies for countering China’s economic leverage.

The lesson should be clear: Unilateral export controls are not only insufficient in the long run but can be actively counterproductive, catching allies in the crossfire of U.S.-China competition. Even from a purely transactional standpoint, the U.S. and its allies have much to gain from joint responses to Chinese economic coercion. Building collective economic resilience through coordinated export controls, co-investment in decoupling efforts, and extensive information sharing is the only viable path forward. Allied coordination is discussed typically in the context of frontier AI, but legacy chips demand equal attention. Getting this right matters not just for Europe’s auto sector, but for the broader cohesion of the Western technology alliance.

The Crisis, Explained

Nexperia is a Chinese-owned semiconductor company, based in the Netherlands, that makes basic, low-margin, legacy chips. These chips are typically built with older semiconductor equipment, have larger process nodes, and are less powerful than their cutting-edge counterparts. But while legacy chips cannot perform complex computations, they are crucial to the European economy because they are heavily embedded in automotive applications, powering airbags, lighting, and power systems. These are not generic components that can be easily swapped out—Nexperia chips have attained exceptionally high reliability standards that cannot be met by uncertified alternatives. Simply put, if you want to build a Volvo, you need a Nexperia chip.

In December 2024, Nexperia’s parent company, the Chinese technology group Wingtech, was added to the Entity List over evidence that it helped the Chinese government acquire sensitive American semiconductor technology. Addition to this list meant that U.S. companies could not export goods or technology to Wingtech without a license that’s difficult to obtain. As a Dutch-headquartered subsidiary rather than Wingtech itself, Nexperia was initially left untouched. But less than a year later, that changed. In September 2025, the U.S. government enacted the 50 percent Affiliates Rule, making any entity at least 50 percent owned by a company on the Entity List or Military End-User List subject to the same export restrictions. Nexperia, by way of Wingtech’s majority ownership, was now caught in the net.

By the end of September 2025, the Dutch government had attempted to alleviate supply chain uncertainties by invoking rare, Cold War-era emergency powers to seize control of Nexperia’s Dutch operations. In early October 2025, it suspended Nexperia’s CEO, Zhang Xuezheng, and placed Wingtech’s voting rights under the control of an independent Dutch administrator. The Dutch government denied that Nexperia’s seizure was a direct response to U.S. pressure, but court documents report that Dutch officials told Nexperia that the chip company might receive an exemption from the United States’s Entity List if Nexperia ousted its CEO—suggesting the Affiliates Rule influenced Dutch decision-making.

China hit back, issuing new export controls on Nexperia and associated subcontractors, blocking them from exporting chip components outside of China, and instructing Nexperia’s China-based employees to ignore orders from its Dutch headquarters. By late October 2025, Volvo and Volkswagen warned of impending factory closures due to chip shortages. The situation had become dire.

But just days later, President Trump and Chinese President Xi Jinping agreed to a one-year truce in the trade war, swapping tariff reductions and a one-year delay in the 50 percent Affiliates Rule for a pause in rare-earth export controls and a commitment from Xi to curb chemicals used to produce fentanyl. On Nov. 1, 2025, the Chinese government announced that it would ease export controls on Nexperia and resume the trickle of chip exports. Earlier this month, the Netherlands reversed its decision to take control of Nexperia as a gesture of goodwill.

The breakdown in trade relations over a Dutch legacy chip company might seem like a minor skirmish against the larger backdrop of U.S.-China competition, but it illustrates where China is placing its bets and how it can exploit Western supply chain dependencies. Attempts to tackle this issue unilaterally did little more than catch Europe in the crosshairs.

Unilateral Export Controls Are Not Enough

Considerable debate in Washington divides between two approaches to export controls: unilateral and plurilateral. The unilateral approach relies primarily on the foreign direct product rule, which enables the Commerce Department’s Bureau of Industry and Security (BIS) to restrict the sale of any product made with U.S. technology. This rule is nimble and comprehensive, but it comes with collateral damage and aggravates an already paternalistic relationship with allies. In contrast, the plurilateral approach opts for export control diplomacy—slower and more coalition dependent, but less likely to alienate partners or hinge on the U.S. maintaining a permanent technological edge.

The Nexperia crisis reveals why the unilateral approach is insufficient, for two related reasons. First, China’s leverage lies not in frontier technologies but in the basic supply chains underpinning other countries’ tech production. More than 70 percent of Nexperia’s chips, for example, must flow through China for assembly, testing, or packaging. When Beijing controls chokepoints like these—while retooling its own supply chains simultaneously to eliminate dependencies on Western technology—unilateral export controls over high-end chips will not halt China’s AI progress.

Second, the U.S. cannot out-leverage China alone. The combined economies of U.S. allies add roughly $35 trillion to its $30 trillion of gross domestic product in scale—a counterweight to Chinese economic pressure that unilateral tools simply cannot mobilize. Even the Trump administration’s National Security Strategy—despite the administration’s broader preference for unilateral action—acknowledges this reality, emphasizing that “the United States must work with our treaty allies and partners ... to help safeguard our prime position in the world economy and ensure that allied economies do not become subordinate to any competing power.” Yet when the 50 percent Affiliates Rule left Dutch industry exposed to Chinese retaliation with no coordinated response, the crisis demonstrated the gap between rhetoric and practice. Allies who bear the costs of U.S. export control decisions without consultation will eventually stop cooperating with them.

The administration’s recent decision to allow H200 chip sales to China compounds the damage. Manufacturing H200s requires ASML’s EUV lithography—proprietary Dutch technology that the Netherlands agreed not to transfer to China at high economic cost. Japan and Taiwan made similar sacrifices in the name of collective technological security. When Washington then permits the sale of chips built with that same technology, it signals that allied burden-sharing is a one-way street. These countries will not comply with the BIS indefinitely if the U.S. keeps changing the rules to suit its own interests.

For their part, the Europeans must abandon the illusion that they can work with the U.S. on export controls while mitigating blowback from Beijing. In response to Trump’s “liberation day” tariffs, China’s Ministry of Commerce warned that it would “take countermeasures in a resolute and reciprocal manner” against any country that made deals with the U.S. at China’s expense. There is no neutral ground here: Coordination with the U.S. will invite retaliation from China, and European capitals must be willing to absorb that cost.

One for All, All for One

The U.S. and EU currently implement tariff, industrial, and export control policies with little meaningful progress on coordination. Responses to China’s overcapacity and dumping have often diverged, and the CHIPS and Science Act and the European Chips Act were broadly unilateral programs. But the two blocs each account for 15 to 16 percent of Chinese exports—combined, they represent over 30 percent. That scale is leverage if they choose to use it together.

This points toward a strategy of collective resilience: Economic allies banding together to diminish the efficacy of China’s coercive tools by committing to support one another and punish Beijing for acting against any single member as a collective. The approach has precedents to build on—the Cold War-era Coordinating Committee for Multilateral Export Controls, or CoCom, for example, helped embargo strategic technologies to the Soviet bloc—and proof of concept in the present, such as the Wassenaar Minus One Arrangement. Plurilateral commitments to deny China critical technologies for advanced AI chip manufacturing have hindered its ability to produce these chips at the scale or quality of Western counterparts.

Collective retaliation could work similarly. Take Nexperia as a counterfactual. After the Dutch government moved to comply with the expanded Entity List restrictions, the U.S. and its allies could have threatened a collective trigger. If Beijing halted exports of finished Nexperia chips, member states would apply export controls together on equally strategic and nonsubstitutable goods—computer numerical control machine tools, chemical precursors, and aircraft manufacturing components, among others. This amounts to mutually assured disruption: Any act of economic retaliation elicits a coordinated response, giving Beijing pause before weaponizing supply chains. However, such deterrence is credible only if practiced consistently. Like all collective action problems, it requires full commitment from every member, with no defectors.

This is where the political difficulty lies. Gaining buy-in from allies would require a different approach than the Trump administration has so far pursued. The administration’s transactional view of international cooperation—its suspicion that allies exploit American wealth—sits uneasily with multilateral commitments. Yet transactionalism is not inherently incompatible with coordination. If the administration can be convinced that collective action serves U.S. interests—that the alternative is allies peeling off one by one under Chinese pressure—it may prove more receptive than its rhetoric suggests. Meanwhile, European partners must do their part to dispel perceptions of free-riding, presenting collective resilience as genuine burden sharing rather than another demand on U.S. resources.

Joint Chokepoint Backstops

Allied coordination is not just about deterrence; it’s also about building the capacity to absorb economic blows. Existing mechanisms offer a starting point. The Group of Seven’s Coordination Platform on Economic Coercion, established in 2023, was designed in part to address this kind of scenario. The U.S. has signaled an appetite for similar initiatives of its own, such as Pax Silica, a recently announced strategic partnership among several member countries of the Organization for Economic Co-operation and Development to shore up semiconductor supply chains at every stage of production.

Pax Silica focuses primarily on advanced AI capabilities, but the framework could extend to legacy chips. Joint ventures, co-investment opportunities, and coordinated industrial policy could form part of the initiative, and all apply to foundational technologies just as readily. Governments have already made some efforts to shift assembly, testing, and packaging out of China through the U.S. CHIPS and Science Act, the European Chips Act, and tariffs on Chinese chip imports. But China still maintains a firm grip on legacy chips, rare earths, and other mundane but essential components. Relocation requires time, expertise, and manufacturing facilities that no single country can mobilize easily on its own.

This is where joint investment becomes essential. If allied countries pooled capital and talent to co-invest in assembly facilities on allied soil, they could overcome the prohibitive cost of decoupling unilaterally. Joint investment projects may face pushback from taxpayers who oppose overseas subsidies, but it has been successful in the aviation industry, and allies should not count this option out. Decoupling also comes with a first-mover penalty. The first country to shift supply chains incurs costs and loss of market access, while others hang back and free-ride. Joint ventures mitigate this by synchronizing market exits and reentries, ensuring no single country bears the burden alone.

Extensive and Regular Information Sharing

Much of the damage from the Nexperia crisis stemmed from the sudden implementation of the 50 percent Affiliates Rule. While Dutch officials received advanced notice of the impending rule, U.S. officials presented the rule more as a ransom note to oust Nexperia’s CEO than an attempt at coordination. When the rule dropped, allies could not respond effectively.

This points to a second necessary reform: institutionalized information sharing before export control changes take effect. Existing intelligence channels could be expanded to create a Five Eyes-style network for economic security—one that games out potential retaliation scenarios from Beijing, assesses allied resilience, and coordinates responses before crises erupt. Such a network would face obstacles: European partners may be wary of deeper intelligence integration with Washington, and Washington may bristle at consulting allies before acting on what it views as sovereign economic policy. But the alternative—ad hoc scrambling after each unilateral U.S. action, followed by Western capitulation to Chinese economic pressure—has proved worse. In future adjustments to the Entity List, the BIS should also consult with economic partners preemptively through a revived EU-U.S. Trade and Technology Council to anticipate collateral damage and give allies time to prepare.

The Nexperia crisis may have subsided, but it will not be the last of its kind. China’s dominance over upstream manufacturing processes is a structural feature of the global economy, not a temporary imbalance. The question is whether Washington and its allies will build the coordination mechanisms necessary to manage that reality—or continue to inflict damage on each other while Beijing watches from the sidelines.