The EU Chips Act — a third party in a two-player game?

By Darren Wong, European Horizons Editorial Board

Photograph Source: Euractiv, 2021

With digital technologies primed to drive economic growth in Industry 4.0, the European Commission recently announced plans to introduce the EU Chips Act in the second quarter of 2022 to double its share of the world’s chip industry from 10%. This comes with no surprise, given the global chips shortage and supply chain bottlenecks that hit the EU’s automobile industry hard in 2021. Compounded by the increasingly tense US-China rivalry over the design and fabrication of the semiconductors, it has become a strategic need to gain a degree of self-sufficiency in these semiconductors, a vital component of multiple booming sectors, including consumer electronics and quantum technology.

Seeking to gain a greater foothold in the semiconductor ecosystem, the EU Chips Act poises Europe to make a stake for technological sovereignty, which has quickly become a key dimension of geopolitical competitiveness. Dependencies can involve crucial data security issues and leave countries or companies vulnerable to sudden geopolitical moves, such as Google’s restriction on Huawei’s access to the Android operating system in 2019. In the semiconductor industry, the US currently owns significant intellectual property, but its weakness of fabrication exposes it to supply chain risks. On the other hand, China does not produce sufficient chips domestically to match its production of electronic hardware.

A technological bifurcation is therefore anticipated, albeit not imminently, with both powerhouses moving towards separate tech stacks with their respective supply chain networks, innovation systems, standards, and protocols. A concomitant worry for the EU has been its strategic alignment in the geopolitical chess game of semiconductors and the EU Chips Act will go some way in alleviating this pressure for now. The semiconductor industry has been earmarked as an IPCEI (Important Projects of Common European Interest), a special funding scheme for member states to jointly support transnational projects in critical technologies and industries. In a policy brief published in December 2021, Kleinhans and Lee recommended targeted investments in the EU’s chip design and back-end manufacturing (assembly, testing and packaging), parts of the value chain with increasing value-add potential for revenue generation. The EU Chips Act should also improve conditions for start-ups to kickstart commercialization from research and development, with easier access to public and private funding.

Yet, this ‘strategic autonomy’ that the EU pursues is unlikely to be a significant propellant towards technological leadership in the semiconductor ecosystem. For one, the ballpark figure on the EU’s initial combined public and private investment — €20 to €30 billion — is a far cry from the Biden Administration’s $50 billion investment package and China’s $170 billion from 2014 to 2024. A transnational effort towards building the semiconductor industry will probably be beleaguered by lengthy state aid approval processes and other bureaucratic issues. IPCEIs can be used to support just research and development efforts and first industrial deployment, not to fund the entire pipeline from semiconductor development to mass production.

The EU Chips Act may be insufficient to markedly improve the EU’s competitiveness in an extremely capital-intensive industry with already dominant actors, but no economy can really attain full independence in this sector due to high levels of expertise and sheer amount of capital expenditure demanded. It will be prudent for the EU to ensure sustainable supply through diplomacy and prudent industrial policy as attendant priorities, rather than focusing solely on semiconductor design and fabrication capacity. The technological sovereignty and strategic autonomy that the EU is working towards, then, will need to recognize and respect the geopolitical balance of power without appearing protectionist or undermining the rules-based international order.


European Commission. 2020. Speech by Commissioner Thierry Breton at Hannover Messe Digital Days.

Sahin, K. and Barker, T. 2021. Europe’s capacity to act in the global tech race. DGAP Report, German Council on Foreign Relations.

Kleinhans, J-P. and Lee, J. 2021. China’s rise in semiconductors and Europe: recommendations for policy makers. MERICS.

Poiters, N. and P. Weil. 2021. A new direction for the European Union’s half-hearted semiconductor strategy. Bruegel.

Batchelor, B. et al. 2021. EU announces more expansive approach to semiconductor subsidies. Skadden.

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