As U.S.-China trade tensions escalate again, CNBC’s Jim Cramer says investors need to look to Europe to better understand the animosity between the world’s two largest economies. There they’ll find ASML, a Netherlands-based company that makes advanced lithography equipment essential to the production of cutting-edge semiconductors from companies like Nvidia that are fueling the artificial intelligence boom. Nvidia has a long-standing position in Cramer’s Charitable Trust, a portfolio used by CNBC Investing Club. ASML on Wednesday reported what Cramer called a “very good” third quarter, with better-than-expected bookings and margins. However, ASML CEO Christophe Fouquet warned that he expects sales to Chinese customers to be “significantly” lower next year compared to the “very strong business in 2024 and 2025.” The U.S. government has cracked down on sales of advanced chips to China, citing national security concerns, and has also placed export restrictions on certain chip-making tools and equipment in an effort to curtail the manufacturing capabilities of Chinese companies. The Dutch government has followed suit with licensing requirements affecting ASML. In effect, ASML’s most advanced technology – an engineering marvel known as extreme ultraviolet (EUV) lithography equipment – was cut off from China, although it was able to sell less advanced types of lithography equipment there. “That’s the core of what the Chinese are most concerned about,” Kramer said on CNBC Wednesday morning. “Without AMSL, they can’t do what Nvidia does. …AMSL is the key. And as long as we keep restricting ASML, China must go crazy, because they can’t beat the US in chip technology.” ASML is the only company selling EUV equipment, which uses short wavelengths of light to print complex circuit patterns on pieces of silicon. According to the company, this is a highly complex process, with the machine taking 20 years to develop and containing approximately 100,000 parts. Buyers of the machine include Taiwan Semiconductor Manufacturing Company, the world’s leading third-party chip manufacturer. Earlier this year, the Dutch defense minister said Chinese espionage against the country’s semiconductor industry was “intensifying.” Cramer’s comments Wednesday followed several days of volatility on Wall Street as investors grappled with a flare-up in U.S.-China trade tensions. Stocks were sold aggressively on Friday, especially after President Donald Trump threatened to retaliate against the Chinese government for its recent crackdown on exports of rare earth minerals, an industry controlled by China. This was reminiscent of some of the tariff-driven stock market declines experienced this spring, when President Trump began implementing aggressive trade policies after returning to the White House in January. After an apparent attempt to de-escalate tensions over the weekend, President Trump on Tuesday accused China of “deliberately not buying” U.S. soybeans. Kramer suggested to investors that worrying about soybeans instead of semiconductors is missing the forest for the trees. The importance of semiconductors in the U.S.-China conflict increased during President Trump’s first term and solidified under former President Joe Biden, who expanded export controls. Enhancing the competitiveness of China’s domestic semiconductor industry has been a major focus of Chinese President Xi Jinping for the past decade. Chinese researchers recently claimed a breakthrough in lithography technology, according to the Center for Strategic and International Studies, a Washington-based think tank. Meanwhile, Kramer said another key factor in the trade conflict is China’s advantage over the United States in rare earth minerals, which are critical components such as fighter jets and electric car motors. “Rare earths are a problem,” Kramer said. “Fighter jets actually use rare earths. This is a part of our economy that we can’t skimp on.”
