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The EU Chips Act and the US Chips Act

At a glance

- The US and EU have active semiconductor manufacturing acts in place - the US's "CHIPS and Science Act" and the EU's "European Chips Act."  

- Chips are critical to every device and the lifeblood of the modern economy, and the pandemic has shown how vulnerable Western countries are to semiconductor chip shortages.  

- The scale of investment in the US and EU Chips Acts varies significantly, with the US investing $300 billion and the EU hoping to collect 43 billion euros for research and fab creation.  

- Southeast Asian countries continue to invest heavily in semiconductor manufacturing, making it challenging for the US and EU to (re-)gain market shares. 



Illustration combining EU and US symbols with semiconductor circuitry.


Introduction

The US and the EU both have their "Chips" Acts active at present—the US's "CHIPS and Science Act" and the EU's "European Chips Act." These acts represent significant investments in semiconductor manufacturing, aiming to gain market shares in this critical market and bolster the global competitiveness of the US and EU semiconductor industries, which the dominance of Southeast Asian countries has challenged. 


Why Now?

Chips are integral to every device and the lifeblood of our modern economy. A company's inability to procure them can halt its production entirely. During regular economic times, manufacturers can source chips from the global market. However, during crises such as a pandemic, logistical issues can disrupt the global supply chain, leading to producer countries prioritizing local deliveries. When the chips are down, you take care of your own!


For a protracted global crisis without chips, manufacturers may abandon otherwise profitable products or go under entirely, severely damaging the economy. The Covid pandemic showed how vulnerable Western countries, especially the EU, are to semiconductor chip shortages. And it could be worse, yet. A pandemic is a crisis with the world more or less 'in the same boat.' But imagine the chaos if a war were to break out involving major chip producers like China and Taiwan, disrupting the global supply chain even further.


The prospect of having your continental economy gutted by supply shortages made many politicians decide the time was right for more semiconductor investment.


The Scale of the US/EU Chips Acts

Comparing the scale of the chip's acts can be tricky. At first glance, the expected public and private investments can seem similar. The EU hopes to collect about 43 billion euros for research and fab creation, and the US is currently overseeing $50 billion for development. However, the scale is very different - the EU funds will be built up from member state contributions, so it will likely still take a few years for member states to supply the funds. The US funds are currently up for proposals.


It may be more fair to compare the 43 billion euros to the $300 billion the US government foresees they will ultimately manage within the Chips Act framework. The $300 billion is aspirational, but we can say the same for the EU's 43 billion euros. With this lens, the US Chips Act dwarfs its European counterpart. This significant investment disparity could lead to the US retaining market share in the semiconductor industry while the EU may struggle to keep up.


And what about Southeast Asia?

The idea that the US and EU can gain market shares from Southeast Asia requires that these countries stand still while the West overtakes them. They have, however, decided not to stand still—public investments in semiconductor manufacturing are consistently substantial. As a prominent example, the Korean government has announced the Gyeonggi Province Megecluster project, which will see six fabs created with an investment of $473 billion - more money than the US and EU put together from a country with only 56 million inhabitants! 


The countries with the most significant market share, Taiwan and Korea, continue to invest the most money. As they start from a better position and put up more money, they will, most likely, remain dominant in producing high-end chips.


US Consequences

The US will likely boost domestic production, partly by helping foreign companies establish factories on US soil. Taiwan Semiconductor Manufacturing Company(TSMC) and Samsung received the second and third most significant grants from the US Chips Act, respectively, of $6.6 billion and $6.4 billion.  Even if US-based companies do not expand their market share, having production facilities on US soil alleviates supply problems during a crisis.


EU Consequences

The situation is challenging for the EU —the level of investment, while significant, may not be sufficient to gain market shares, and the EU is even likely to lose further market shares due to the disparity in funding with the other contenders. In contrast to the US, self-sufficiency in computer chips will likely remain a critical issue for the EU. 


However, while I don't expect the EU to gain ground in high-end and large-scale chip production, the investments will improve semiconductor research, prototype, and small-run production. With this capacity, the EU could retain its significant industry that supplies equipment, design, and services to high-end semiconductor production. 


Conclusions

The US and EU Chips Acts represent significant investments in semiconductor manufacturing, and they aim to bolster the global competitiveness of their respective semiconductor industries. However, the scale of investment and the challenges each region faces vary significantly. The US is likely to boost domestic production, though not gaining market shares. The EU may struggle to achieve self-sufficiency in high-end microchips, but the investments will still improve the capabilities of EU participants in the global semiconductor industry.


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