In her speech on the State of the European Union, Ursula von der Leyen, President of the European Commission, announced key European initiatives for 2022 and, amongst others, a proposal for a “European Chips Act”. She stated that nowadays, Europe strongly depends on semiconductors produced in Asia. “This is not just a matter of our competitiveness”, she believes, “this is also a matter of tech sovereignty.” (1) In fact, she already said in her inauguration speech in 2019 (2) that the EU “must have mastery and ownership of key technologies in Europe. These include quantum computing, artificial intelligence, blockchain, and critical chip technologies”.
Truly, there seems to be no digital technology without the famous microchips. In the digitised world of today, these computer chips become inevitable. From technology integrated in the newest cars and medical devices, to smartphones, tablets, game consoles and products referred to as the Internet of Things, semiconductors are of critical essence. They are part of millions of components that are integrated in more complex products as well as everyday consumer goods, across sectors. This partly explains an intensive pressure on the microchips industry in recent years.
Certainly, the Covid-19 pandemic reinforced the trend when our economy and society experienced an accelerated digitalisation with a sudden and enhanced demand for digital communication devices that would allow people to work remotely. Besides, the crisis has caused a rise in air freight fees and costs of shipping containers, thereby adding to the disruption of the supply chain for semiconductors. In the automotive sector however, current shortages are also linked to the cancellation of chip orders during the shutdown of car production sites, followed by an unexpected fast recovery and high demand in electric cars at the time when the semiconductors were thus redirected to other sectors. In addition, the trade war between the US and China had a great impact on the market before the pandemic, when former President Trump’s administration started to prevent Huawei from buying important US technologies and, accordingly, American companies could not buy chips made in China (3). Finally, several accidents and for instance, a fire in a Japanese semiconductor manufacturing plant, have moreover contributed to the delay and slowdown of respective productions (4). Altogether, the succession of various past events led to a more general shortage of semiconductors.
After launching projects such as the European Battery Alliance or Gaia-x, the announcement of a European Chips Act reveals another initiative supporting President von der Leyen’s offensive towards technological sovereignty.
When in 2020, several Member States (excluding Luxembourg) signed a joint declaration (5) to work together to strengthen Europe’s capabilities in semiconductor technologies, Commissioner for the Internal Market and Industry, Thierry Breton, likewise recognised the important role of designing and manufacturing chips in the context of “Europe’s industrial strategy and digital sovereignty” (6). On 15 September, he confirmed that “the race for the most advanced chips is a race about technological and industrial leadership” and laid down his vision, building on the European Commission’s work with companies to set up an industrial alliance (7):
- Pushing European research to the next level.
- Increasing Europe’s production capacity through monitoring the supply chains, anticipating disruptions, and supporting European fabrication plants.
- Maintaining international cooperation and foreign direct investment while diversifying the supply chains to decrease overdependencies.
- Proposing a dedicated fund to ensure coherent financing and putting together an investment plan with the possibilities offered by IPCEI (Important Projects of Common European Interest).
Yet, the EU will have to overcome significant challenges as it is extremely complex, expensive and time consuming to reallocate the design and production of semiconductors. For example, the US’s Chips for America Act foresees a multitrillion dollar infrastructure program to finance their new project (8). On the other side, considering China has made it a national priority to become self-sufficient in chips (9), the EU is under probation to adopt the proposal rapidly for the initiative to be successful. Not least, does the current skills gap and the cost of labour represent a crucial obstacle. In the end, it is a test for Europe’s global competitiveness.