Insight
The EU should abandon chip nationalism by Zach Meyers, 20 October 2022 With the US aggressively throttling China’s chip capabilities, the EU wants to protect itself by subsidising its own domestic chip manufacturing industry. But Europe has better and more realistic alternatives. Europe’s supply of semiconductors is vulnerable – and the EU knows it. Politically symbolic sectors like car manufacturing have already been hit hard by global chip shortages. Europe’s car companies initially cancelled orders for new chips from foreign chip manufacturers as pandemic lockdowns began. When demand recovered, car-makers found they were sent to the back of chip manufacturers’ queues. In some member-states, car production plummeted by over a third. Europe’s car industry has been slower than elsewhere to recover. Europe’s supplies will only become more precarious. Growth in demand for electric (and future autonomous) vehicles means auto manufacturers will need more advanced chips in future. That could vastly limit Europe’s potential suppliers, since only Taiwanese firm TSMC and Korean firm Samsung can produce these chips. And Europe will almost certainly suffer collateral damage from rising US-China tech rivalry. After years of limiting China’s access to cutting-edge chip technologies, the Biden administration has just taken much more aggressive steps to stop China producing its own cutting-edge chips – which will harm important European firms that supply chip equipment to China, and could drive up prices since Europe currently sources a large proportion of its chips from China. Chinese retaliation could cause monumental disruptions, since China remains the leading supplier of several inputs essential to the chipmaking production process. All this means that European companies must adapt to growing supply chain risks. Rather than leaving it to businesses to manage their own risks, the EU instead wants to spend big to reduce Europe’s vulnerabilities. The centrepiece of this strategy is the EU’s Chips Act proposal, soon to be adopted by the EU law-making institutions. The Act would allow member-states to subsidise chip manufacturing plants which are ‘first of a kind’ in Europe, aiming to double the EU’s share of global production capacity to 20 per cent by 2030, including 20 per cent of cutting-edge chips. In a supply crisis, the European Commission could also force these subsidised EU chip manufacturers to reprioritise their orders, for example to meet the needs of businesses in the single market. CER INSIGHT: The EU should abandon chip nationalism 20 October 2022
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