25 November 2022

Combatting semiconductor shortages: Where does the US-China battle for chip autonomy leave Europe?

Semiconductor shortage continues to be an issue worldwide for the tech sector. Even the introduction of economic packages, such as the US CHIPS and Science Act, which aims to invest $280 billion to bolster their national semiconductor capacity, have done little to boost confidence in global semiconductor reserves. Now, new policies coming out of Washington could have major implications on global semiconductor trade.

Last month, the US government released a regulatory filing that went relatively unnoticed, particularly when considering its context in terms of the global ramifications that could proceed. The US government has announced the implementation of additional export controls on their semiconductor manufacturing items, implementing trade barriers to 28 entities, all located in China.

Whilst finished semiconductors are seldom made in the US itself, manufacturing entities within China rely on US imports of resources for their chip production. This is yet another blow in the semiconductor trade war ongoing between these two global tech giants, one which may be seen as a US attempt to hinder China’s technological ambitions, as highlighted in their latest five-year plan.

As trade negotiations continue, Europe has been significantly impacted by these global changes to semiconductor trade. In the immediate fallout of these export controls, there is considerable uncertainty for European chip firms when considering trade with their US and Chinese clients. There is also great concern amongst private companies across Europe, as to the unintended consequences the US government’s actions will have on international supply chains, and more pressingly, how the Chinese government will respond to these serious trade regulations.

The implications on trade within the EU can already be seen. As the US went ahead with these restrictions without any public consultation or conference with international allies, nations have been caught off guard, and confidence in future chip supplies has slipped. It is vital governments and their representatives communicate that the new trade restrictions will have no impact on European technology competitiveness, whilst also ensuring that the US-EU Trade and Technology Council (TTC) keeps its legitimacy as a body responsible for the discussion of transatlantic trade controls.

Where the US CHIPS act saw massive amounts of investment funnelled into semiconductor research and development, a more inclusive STEM workforce, and bolstered semiconductor capacity, the European CHIPS act is still a moot point with no concrete legislation. Now more than ever, a regional European semiconductor investment policy is needed to combat some of this global uncertainty. The semiconductor industry has now become a complex economic environment, one which Europe needs to ensure it can navigate if it wants to maintain its standing within the worldwide tech sector.

Although a cemented legislative CHIPS act for Europe appears to be some way off, it is clear that Europe is attempting to develop a more independent tech manufacturing sector. In April of this year, the European Commission put forward the possibility of a European CHIPS act equivalent, with aims to boost Europe’s share of global chip manufacturing from 10% to 20% in the coming years. This act aims to boost investment for technological capability and capacity, as well as to provide some levels of strategic autonomy for Europe moving forward. If this investment package becomes a solid reality, European governments can feel more comfortable when considering the trade regulative activities of the likes of China and the US.