The EU’s plan to boost chip production has been given the green light

Last year, the European Commission's proposed EU Chips Act aimed to ramp up the bloc's chip production.

The EU’s plan to boost chip production has been given the green light
European Commission Vice President Margrethe Vestager holds a news conference on a plan to boost the chip industry, in Brussels, Belgium, February 8, 2022. REUTERS/Yves Herman/File Photo

The backstory: The semiconductor industry has faced a lot of pressure with COVID-related supply chain issues and geopolitical tensions between the US, China and Taiwan. The US also put chip export curbs on China, increasing competition and incentivizing domestic chip production, with major producers like TSMC building new factories in the US.

More recently: Last year, the European Commission's proposed EU Chips Act aimed to ramp up the bloc's chip production to 20% of global output by 2030 (right now, it's at about nine, by the way). It's pretty much been motivated because of how much supply chains were messed up during COVID and the ongoing geopolitical issues.

It's a big move, but some lawmakers and experts are skeptical about whether it can be achieved. They're concerned that the demand for chips is low, and it's expensive to make them, especially with high energy prices in Europe.

The development: The EU just gave the green light to a €43 billion (US$47 billion) plan to boost its own semiconductor industry to keep up with places like the US, Taiwan and China, which are leading the global pack on the chip front. In fact, they wrapped up discussions in just a little over a year, which is fast for the bloc. The move marks the first of several plans to let governments get more involved in supply chain matters.

So, how will they pay for it? According to insiders, the EU will collect funds from various budget items, including the bloc's digital program and unused cash. And the deal will allow for government subsidies, bringing in more state funds to help.

But before all this, though, the Chips Act still needs to be approved by the European Parliament and EU member countries and then published in the Official Journal to become law.

Key comments:

"The EU is justified in developing a more robust supply chain. There's a strong history in chip innovation in Europe. That said, the newest technologies are beyond today's capabilities. China continues to invest in research and development and its technology industry has made many, many impressive world firsts," said Walter Jennings, CEO of Asia Insight Circle, to TMS.

"This will allow us to rebalance and secure our [chips] supply chains, reducing our collective dependence on Asia," said Thierry Breton, Internal Market Commissioner, in a statement shared with POLITICO after concluding the deal.

"In a geopolitical context of de-risking, Europe is taking its destiny into its own hands," wrote Thierry Breton, the EU's internal market chief, on Twitter. "By mastering the most advanced semiconductors, the EU will become an industrial power in the markets of the future."

"The Chips Act cannot be the only act that would help those investments," said Eva Maydell, the lead negotiator for the package in the European Parliament. "It will help bring us to 20%, but we need to make sure that we're doing all the other things that make the EU appealing."