STORY: The auto industry thought it had learned from past chip shortages.
Then a diplomatic fight over Dutch chipmaker Nexperia's factory in southern China revealed a new risk.
Nexperia's plant in Dongguan makes low-tech semiconductors used in things like car brakes and electric windows.
They sell for pennies--but when Beijing halted exports, automakers from Nissan to Honda were forced to cut production.
The move came after the Dutch government seized Nexperia's headquarters, citing concerns its technology could be passed to Chinese parent firm Wingtech.
China hit back, stopping shipments and demanding payments in yuan.
Professor Li Xing from the Guangdong Institute for International Strategies says Europe, and particularly Nexperia host country the Netherlands, underestimated China's leverage.
"They (the Dutch) thought they controlled Nexperia, but what they actually control is just one administrative building, the management building. In reality, 70% of the chip assembly and packaging is located in Dongguan, which is very close to me, not far at all. Very close to Guangzhou. So after they did that (seized Nexperia in the Netherlands), the Chinese government decided that Dongguan would no longer enforce Nexperia orders and stop exporting. And once exports stop, the German auto industry and the French auto industry are in trouble."
Following talks between the two governments, the Dutch government took a step back from the intervention, a move welcomed by China, which said it saw it as a, quote "first step in the right direction" to easing chip supply shortages.
Although the Nexperia issue has deepened alarm about relying on China, pivoting away isn't easy either, according to Joerg Wuttke, an expert on European trade with China.
"So China is just very, very difficult to replace as a supplier. But again, the rare earth case and the Nexperia case makes people reconsider what to do in the future, and that might be having a second option elsewhere."
