Chip laws in the USA and EU

The path to technological self-sufficiency

The semiconductor chip shortage that has hit the global market in recent years has exposed the dependence of many industries on this key technology. The United States and the European Union have decided to act and have adopted ambitious legislation to encourage domestic chip production and reduce dependence on Asian suppliers. The US CHIPS Act and the European Chips Act represent a significant step towards strengthening the technological self-sufficiency and competitiveness of both regions.

Reasons for the chip laws

The covid-19 pandemic and the subsequent disruption of global supply chains have shown how vulnerable modern economies are without their own semiconductor production. Chip shortages have led to production cutbacks in a range of sectors, from automotive to consumer electronics. In 2021, the automotive industry lost approximately $210 billion in revenue due to chip shortages, and production shortfalls are estimated at 7.7 million vehicles.

Europe and the US have realised that it is essential to invest in domestic production capacity and research to reduce their dependence on foreign suppliers and ensure their long-term competitiveness. Currently, Europe accounts for only 10% of global chip production, while the US accounts for around 12%. Most production is concentrated in Asia, particularly in Taiwan, South Korea and China.

Support for domestic production and research

Both laws aim to stimulate investment in the construction of new chip factories and to strengthen research and development in semiconductor technology. The United States plans to invest $52 billion in the US semiconductor industry, while the European Union has earmarked €43 billion to support the European chip ecosystem.

The US CHIPS Act provides $39 billion in direct subsidies for the construction of new factories and $13 billion for research and development. In addition, it offers a 25% tax deduction for investments in semiconductor manufacturing and related equipment. The European Chips Act mobilises a total of €43 billion, of which €11 billion will come from EU and Member State public resources and the rest from private investment.

These funds are intended to help attract private investment and create favourable conditions for the development of domestic industry. The first results are already emerging - for example, Taiwanese company TSMC plans to invest USD 12 billion in a new factory in Arizona and South Korea's Samsung has announced an investment of USD 17 billion in a new plant in Texas.

Reducing dependence on Asian suppliers

Currently, most of the world's semiconductor production comes from Asia, especially Taiwan, South Korea and China. This concentration of production poses a risk to European and US firms that depend on supplies from this region. Possible geopolitical tensions or natural disasters could seriously disrupt supply chains and threaten the functioning of key industries.

Chip laws aim to diversify supply chains and reduce dependence on Asian products. Investments in domestic production are intended to ensure a more stable and secure supply of chips for key sectors such as automotive, aerospace, defence and healthcare. The aim is to achieve greater self-sufficiency and resilience to external shocks.

Technological self-sufficiency and competitiveness

Semiconductor chips are the foundation of modern technology and their importance will continue to grow in the future. Demand for chips is expected to double by 2030, driven by developments in artificial intelligence, 5G networks, the Internet of Things and autonomous vehicles, among others. If the US and the EU want to remain global technology leaders, they need to invest in their own chip research and manufacturing.

The chip laws are intended to help build a strong and innovative semiconductor industry that will be able to compete with Asian manufacturers and ensure the long-term technological self-sufficiency of both regions. The aim is not only to increase production capacity but also to encourage the development of new technologies such as advanced chips with lower power consumption, 3D chips or quantum computers.

The European Chips Act aims to double the EU's share of global chip production to 20% by 2030. It aims to achieve this by, among other things, promoting research and development, building pilot lines to test new technologies and working with Member States and industry. The US CHIPS Act seeks to strengthen domestic production and reduce dependence on China, including by limiting exports of sensitive technologies.

Comparison of American and European chip law

Although the US CHIPS Act and the European Chips Act have similar objectives, there are some differences in approach and focus.

Investments and grants

The US CHIPS Act foresees investments of $52 billion, of which $39 billion is for direct subsidies for the construction of new factories and $13 billion for research and development. The European Chips Act plans to mobilise a total of €43 billion, to be shared between Member States and private investors.

The European approach places greater emphasis on coordination and cooperation between Member States and industry. It foresees the involvement of research institutions, universities and SMEs. The American law focuses more on supporting large companies and attracting foreign investment.

Focus on research and innovation

The European Chips Act pays more attention to promoting research, development and innovation in semiconductor technologies. The aim is to build a strong ecosystem in Europe capable of developing and manufacturing state-of-the-art chips. It foresees the establishment of a new organisation, the "Chips Joint Undertaking", which will coordinate research and innovation activities and work with industry.

The US CHIPS Act also encourages domestic research and development, but puts more emphasis on applied research and commercialisation of new technologies. Part of the funding is intended to encourage collaboration between industry, universities and federal agencies such as the National Science Foundation or the Department of Energy.

Cooperation with international partners

Both laws emphasise the need for international cooperation with like-minded countries in the semiconductor field. The European Chips Act explicitly mentions building partnerships with the US, Japan, South Korea and Taiwan. The aim is to share experiences, coordinate investments and avoid duplication.

The US CHIPS Act focuses on reducing cooperation with China and strengthening ties with Asian allies. The law prohibits subsidy recipients from expanding or upgrading advanced chip production in China for 10 years. It also encourages research and development cooperation with Taiwan, South Korea and Japan.

Impacts on the future market situation

The US CHIPS Act and the European Chips Act represent a fundamental change in the global dynamics of the semiconductor industry. They aim to disrupt the current dominance of Asian manufacturers and strengthen the technological self-sufficiency and competitiveness of Western economies. If the ambitious goals of both Acts can be achieved, significant changes will take place in the chips market.

Diversification of supply chains

One of the main impacts will be to diversify supply chains and reduce dependence on Asian products. New factories in the US and Europe will ensure a more stable and secure supply of chips to key industries and reduce the risk of outages in the event of geopolitical or natural crises. It will also open up new opportunities for local companies and suppliers to join the emerging ecosystem.

Strengthening innovation and competitiveness

Investment in R&D will help accelerate innovation in semiconductor technologies and strengthen the competitiveness of Western firms. New technologies and applications will emerge that will find applications in a range of sectors, from automotive to healthcare and artificial intelligence. Collaboration between industry, universities and research institutions will promote knowledge transfer and the commercialisation of new solutions.

Geopolitical impacts

The chip laws will also have significant geopolitical implications. Strengthening the technological self-sufficiency of the US and EU will reduce their vulnerability to pressure from China and other countries. At the same time, tensions and trade disputes may escalate if China perceives Western initiatives as an effort to limit its technological development. Diplomatic dexterity and finding ways to cooperate constructively will be important.

Impacts on prices and affordability

In the short term, investment in new factories and research may lead to higher chip prices as firms pass on the increased costs to end products. In the longer term, however, diversification of supply chains and increased competition should in turn contribute to price stability and improved chip availability for all sectors.

Summary

The US CHIPS Act and the European Chips Act represent a major milestone in the efforts to strengthen the technological self-sufficiency and competitiveness of both regions. Investments in domestic semiconductor manufacturing and research are intended to help reduce dependence on Asian suppliers and build a strong and innovative industry.

Both laws provide for massive public investment and incentives for the private sector to stimulate the construction of new factories and support research and development. They differ in some aspects, such as the emphasis on cooperation with industry or the approach to China, but they share a common goal of ensuring long-term prosperity and technological leadership in semiconductor technology.

The impact of these initiatives will be far-reaching, affecting not only the semiconductor industry itself, but also downstream industries and geopolitical relations. Diversification of supply chains, increased innovation and changes in global dynamics will shape the future of technological development and economic prosperity in the years and decades to come.

The key will be how efficiently investments can be used, how quickly new production capacities can be developed and whether ambitious R&D targets can be met. International cooperation and coordination will also be important to avoid duplication and inefficient competition between Western countries.

Overall, the chip laws represent a significant opportunity to strengthen the technological self-sufficiency and competitiveness of the US and the EU. Their success will depend on the ability of all stakeholders - governments, companies, universities and research institutions - to work together towards a common goal and overcome a range of technological, economic and geopolitical challenges. If successful, the US and the EU can once again become global leaders in a key sector of the future.

FAQ

Why are semiconductor chips so important to the modern economy?

• Semiconductor chips are the basis of most modern technologies, from computers and mobile phones to cars and industrial machinery. They are essential for the functioning and development of the digital economy and innovations in artificial intelligence, 5G networks, the Internet of Things or autonomous vehicles.

What are the main reasons for the chip shortage in recent years?

• Chip shortages have been caused by a combination of factors, including the covid-19 pandemic, disruptions in global supply chains, growing demand for electronics and geopolitical tensions between the US and China. The high concentration of production in Asia and limited investment in new capacity in recent years also played a role.

How much money does the US and EU plan to invest in supporting the semiconductor industry?

• The US CHIPS Act foresees investments of 52 billion dollars, while the European Chips Act plans to mobilise a total of 43 billion euros. These funds will be used for direct subsidies for the construction of new factories, support for research and development and other measures to strengthen the semiconductor 

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