Europe needs Chips Act 2.0 to compete in digital race

Who was the world’s number one semiconductor chip producer in 1990? The US? China? No, it was the European Union. In 1990, the EU produced 50% of all the chips in the world. Since then, its market share has fallen to less than 10%. US market share has dropped from 45% to 10%, while China’s has grown from zero to 25%.

At the same time, Taiwan has become the only country capable of producing reliable two-nanometer (2-nm) chips, the cutting-edge technology enabling the fastest computing speeds. TSMC, the Taiwanese tech company, is not far from commanding a monopoly when it comes to these super-powerful, strategically vital chips.

This would not be such a big problem if semiconductors were not at the heart of the devices we rely on every day. Our cars, trains, planes, smartphones, and laptops cannot work without millions of semiconductors. Let’s not forget that during the COVID-19 crisis, the interruption of global supply chains resulted in the temporary shutdown of many car factories due to the lack of semiconductors from China. The latest 2-nm chips will be pivotal in the future of the global economy, including the development of next-generation AI, robotics, and data centers.

Our dependence on semiconductors could lead to weaker economic growth (or worse) and an increased rivalry among the great powers. We have seen the war in Ukraine having a major impact on Western economies. Tensions between China and Taiwan could prove far more damaging. A “chip war” could lead to a global economic disaster, with all the political consequences we might imagine.

We must wake up to the risks associated with Europe’s dependency on imported chips and the impact of the likely reinforcement of the US export control regime that could prevent European companies from exporting goods to China. Fewer exports will impact profitability and lead to less investment and innovation. It’s time to react, quickly and firmly.

The 2023 European Chips Act was an important first response to the semiconductor crisis, putting in place crucial measures to increase production, invest in research and talent, and protect supply lines. But we must go further: Europe needs a Chips Act 2.0.

Three steps to a secure Europe’s chip supply

What would the Chips Act 2.0 look like? Here are three key steps:

1. Simplify the European legal framework to provide greater clarity and transparency for all industrial actors. We must eliminate the excessive red tape that prevents our industries from competing globally. We must allow private firms to extend their production and to build new capacities without an overly restrictive regulatory burden. A new legal framework is urgently needed: simplification must be the new motto.

2. Guarantee access to cheap, reliable, and sustainable energy. An increase in nuclear energy production, alongside the development and adoption of renewable energies, represents the best option to meet that requirement. Developing small and medium-sized reactors and fusion research programs should be part of this strategy.

3. Create access to money. The total cost of a new European chip strategy ranges from €50-100bn ($57-113bn) a year. Our chip program cannot be funded without the mobilization of private funds. There is an urgent need to implement the European capital market union, which we have been working toward for more than a decade. Nobody can understand why, in such a time of radical change, the EU member states cannot overcome the technical difficulties that prevent our trade union from becoming a true financial union. With growing chaos on the international stage, a unique opportunity exists to make a breakthrough.

Together, these steps would form the foundations for a new era of innovation in Europe.

What success looks like

What should be our strategic goal? For semiconductors, a credible target would be to stabilize our global market share at 10%, considering the rapid growth of chip production in the US and Asia.

We must build on Europe’s strongholds, which are far more significant than we might suppose. We have everything needed to build a strong semiconductor ecosystem on European soil, with leaders in equipment like ASML in the Netherlands, world-class laboratories like IMEC in Belgium, and top producers like Infineon in Germany and STMicroelectronics in France. An efficient network of competitive and innovative small and medium-sized enterprises must also be nurtured to ensure the strength and resilience of our supply chain. The current European strategy on rare earth materials can complement this strategy.

Producing more chips in Europe is just one side of the challenge. The other is improving access to the most cutting-edge technology – those super-powerful 2-nm chips. Why? There are two obvious reasons. The first is profitability, considering the profit margin associated with that technology. The second is our strategic interest, considering the needs of the defense and space industry in Europe. Let’s be blunt: this goal cannot be reached without the support of foreign companies like TSMC or Samsung. Therefore, contacts must be developed and strengthened to attract those companies to Europe.

When it comes to semiconductors, time is of the essence. Europe’s standing in the 21st century is at stake, along with the possibility of our continent reducing its dependency on the US and China. Either Europe will become an innovative superpower in the coming decade, or it will be condemned to becoming a continent of consumers. The latter will mean we will not be able to fund our welfare state, the fight against climate change, or the means to protect ourselves against emerging threats.

A coalition of member states has been established to foster initiatives on semiconductor production. I wish them every success. Let’s make a Chips Act 2.0 a shining example of what can be achieved when Europe has a clear view of its interests and the determination to defend them.