Tokyo Electron, Asia's largest chip equipment maker, has largely offset US export controls on China by expanding sales of less advanced chip equipment to China
Context & Ripple Effects
Japan’s 2023 decision to place advanced chipmaking tools under export controls aligned Tokyo with US restrictions, but it left a commercially important distinction between leading-edge and less advanced equipment. Tokyo Electron’s sales mix shows how that boundary shapes supplier behavior.
Later trade data reinforced the pattern: more than half of Japanese chip-equipment exports going to China for three consecutive quarters through early 2024 was attributed to demand for less advanced gear. The same channel subsequently became material for US peers, with China contributing more than 40% of Applied Materials’ and Lam Research’s sales.
First-order effects
- Tokyo Electron can preserve China revenue by redirecting sales toward equipment outside the advanced-tool restrictions, rather than exiting the market.
- Chinese chipmakers retain access to imported production tools for legacy capacity even as access to the most advanced equipment is constrained.
Second-order effects
- The result increases the incentive for other equipment vendors to emphasize non-restricted product lines and services in China, a pattern later visible at Applied Materials and Lam Research.
- Policymakers face pressure to assess whether equipment categories, not just named advanced tools, are enabling capabilities their controls were meant to limit.
Third-order effects
- Export controls are likely to become a contest over product definitions and upgrade paths: narrow restrictions can shift demand into adjacent equipment rather than simply remove it.
- If allies broaden rules to close those channels, the equipment industry could face a more fragmented China market and sharper trade-offs between compliance and revenue exposure.
The trend: This is part of export-control substitution, in which restrictions on frontier semiconductor tools redirect sales and capacity investment toward permitted equipment categories.