Chips Act to double EU’s share in global semiconductor production

The European Parliament and EU member states have agreed on a plan to produce more chips in Europe and become less dependent on Asia. “Europe is taking control of its destiny”, is how Internal Market Commissioner Thierry Breton hailed the breakthrough.

With the so-called Chips Act, the EU aims to increase its share of global production from the current 10 to 20% by 2030. For this, the EU wants to mobilize 43 billion euros in public and private funds. The EU will also release 3,3 billion euros for research and development.

Under pressure

Semiconductors are an indispensable building block of today’s digital economy, but the coronavirus illustrated with razor-sharp clarity how fragile global supply chains are. It also showed how dependent carmakers, among others, were on supplies from Asia, which dominates the global market.

And in particular, the dependency on chip strongholds like Taiwan, with the global giant TSMC producing 90% of the world’s most advanced chips, or South Korea, with leaders like Samsung and SK Hynix. And, of course, also increasingly China. But also vis-à-vis the United States, with players such as Intel, Micron, Nvidia, and AMD.

The EU was also under intense pressure from these countries. In August 2022, the US adopted a 52 billion-dollar plan to relocate the manufacture of electronic chips on its soil, while Japan, South Korea, and China announced huge investments, and Taiwan intends to maintain its lead.

Just because of this, and because of increasing geopolitical tensions with China, there has been a heightened awareness in the EU to adopt a more interventionist industrial policy in chip production.

Chips, or semiconductors, are essential in many everyday objects (smartphones, household appliances, cars…) but also in data storage centers, at the heart of the booming digital economy, and they are essential to green technologies crucial to decarbonize the economy.

Competitive EU chip industry

The Franco-Italian STMicroelectronics, American GlobalFoundries, and Intel have already unveiled plans for mega chips factories in France and Germany. They will now be able to apply for public subsidies.

The goal now is thus to reach 20% of the world market in 2030, twice as much as today. With demand expected to double by the end of the decade, that actually amounts to a quadrupling of production capacity.

Tuesday’s agreement “paves the way for a competitive chip industry (in Europe), will fuel a made-in-Europe clean tech industry, and will strengthen our resilience and digital sovereignty”, Commission President Ursula von der Leyen welcomed.

A shortage monitoring system will also be established to allow the Commission to act in times of crisis, prioritizing available supplies or making possible joint purchases.

In mid-March, Brussels proposed another text to secure supplies of critical raw materials essential to European industry, mainly green technologies (batteries, wind turbines, solar energy, etc.), from lithium to cobalt, including nickel  –  components for which Europe remains heavily dependent on China.