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Trade Association: End of Chip Crisis is in Sight

European Commission Approves Billion-Dollar Chip Production Plan

On Tuesday, the European Commission approved its multi-billion-dollar plan to produce more chips in Europe and reduce dependence on Asia and the United States. It must become ‘a game-changer for Europe’s competitiveness’, declared President Ursula von der Leyen.

 

From the operation of critical infrastructure in the fields of energy, health and communication, to industrial automation, to applications in consumer products such as smartphones and washing machines, chips are an essential part of today’s digital economy.

However, the corona pandemic has shown how fragile global supply chains are. For example, production in the car sector in some Member States fell by a third last year. In addition, European industry is heavily dependent on a handful of Asian countries, most notably on chip stronghold Taiwan, in an era of mounting tensions with China.

With the European Chips Act, the Commission wants to increase the European share in global chip production by 2030 from 9 to 20 percent. As demand is expected to double by the end of the decade, that equates to a quadrupling of production capacity.

Ambitious, but Europe simply cannot afford to ‘stay off course’, according to European Commissioner for Internal Market Thierry Breton. Ensuring the supply of the most advanced chips has become an economic and geopolitical priority.

To meet that target, the Commission wants to mobilize more than €43 billion in public and private investment. A colossal amount, but the rest of the world is not sitting still either. The United States, for example, wants to pump 52 billion dollars (45 billion euros) into the sector by 2026, and in Asia, the investment volumes are sometimes even more impressive.

The Chips for Europe Initiative will play a central role in the European plan, which aims to bring together 11 billion euros in European and national subsidies by 2030 in a new joint venture.

This amount, supplemented by private contributions, should be used to finance research into the most advanced technologies and pilot production lines that should accompany the transition from the laboratory to the production line and the market. There will also be a fund of 2 billion euros for start-ups.

Because in terms of research, Europeans are still among the best in the world. “We are not starting from scratch,” emphasized Breton and Vice-President Margrethe Vestager. For example, both ministers threw flowers at the research institute Imec in Leuven at the press conference on Tuesday. “We are pleased that the Commission is rolling out this strong initiative to increase European chip production,” said spokesman Pieter Van Nuffel. ‘It is not yet clear exactly what our role will look like, and it is too early for that. The European plans still have to be finalized and made concrete.’

On top of the R&D investments, tens of billions of euros have to be pumped into new production capacity. The national governments are being looked at for this. The Commission wants to invoke a rarely used article in the European treaty that allows state aid for certain economic activities if the benefits outweigh the potential trade and competitive disadvantages. But if the American Intel or the Taiwanese TSMC breed on a mega factory in Europe, support for those projects will also be linked to conditions, Vestager emphasized. It must be a project that would never get off the ground without public funding, be ‘first of its kind’ and deliver pan-European benefits.

The Commission underlines that Europe remains committed to open and connected global markets. “This is not a strategy to become self-supporting and just make chips for ourselves,” Vestager said. According to the Danish, this would soon require between 240 and 320 billion euros in prior investments. Above all, the Commission wants to strengthen Europe’s position on the world market and better arm itself against economic shocks. Even in the event of any future problems in the chip supply chains, the Commission will initially opt for international cooperation, Vestager assured. Implementing export controls is only “the ultimate resort”.

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