Chips made in Europe

Over the last year, the "Chip Wars" have taken on a new dimension. Recognition of the strategic value of semiconductors, particularly microchips (or "chips"), has led to a geopolitical escalation in production, with the US government already announcing tighter restrictions on their commercialisation for the development of Chinese-origin technologies based on artificial intelligence ("AI"). In Europe, the geostrategic battle over technological dominance and the chip trade culminated in the European Integrated Circuits Regulation ("European Chips Act"), which came into force on 21 September.

These small devices, made up of semiconductors, are vital for the most diverse industries, from cars to bank cards. At the same time, the digital transformation has opened up new markets for the integrated circuit industry, from highly automated cars to cloud computing, the Internet of Things (IoT), space exploration and the development of quantum computing: all highly dependent on the production of chips. The development and massification of these technologies, as well as the need to expand computing capacity, will further increase dependence on the use of chips, which is why dominance over production is directly related to the technological sovereignty of nations: in other words, the development and technological preponderance of states is correlated to their ability to dominate chip production.

In this way, the production of chips is a highly strategic and fundamental factor for the main value chains that are indispensable in the digital economy of the 21st century. The shortage of chips during the COVID-19 pandemic has exposed the fragility of the global supply chain, especially given the dependence on Asian countries such as Taiwan, which is responsible for around 60 per cent of global production. With growing geopolitical tensions, the United States of America ("US") and the European Union ("EU"), which gave up chip production 40 years ago, now face additional difficulties in driving renewed economic goals.

It is the recognition of the strategic value of chips that has led to a geopolitical escalation in their production, especially when it becomes clear that control over their manufacture is directly related to control over technological development.

In September 2023 European Regulation (EU) 2023/1781 on Integrated Circuits came into force, establishing a set of measures to boost production, guarantee resilience and the EU's technological leadership in the field of semiconductor technologies and applications. The aim: to boost the EU's technological sovereignty. It is an ambitious plan based on three pillars: technological capacity for innovation through the development of pilot lines and start-ups; the development of production including pilot production lines and testing, fostering and expanding SMEs. And finally, the creation of a security of supply framework, specifically through a coordination mechanism between member states to monitor supply and respond to crises.

Despite Europe's good intentions, and although promising, the European Chips Act faces serious challenges. First and foremost, the European Union's objective is not only to increase production or self-sufficiency at European level, but also to innovate in order to ensure long-term competitiveness. The practical implementation of the plan is complex and its success depends on coordination between member states, high investment and continuous innovation, with the ultimate aim of doubling microchip production in the EU by 2030. However, the volume of funding required, the complexities of supply chains, along with high international competition, raise serious doubts about the plan's long-term effectiveness. What's more, this isn't the first time that the EU has tried to boost chip production. In 2013, a European plan to boost chip production was announced with the aim of doubling European production and increasing global production by 20 per cent, but it never had the expected impact.

Although it represents a major step forward for the sector, there are still some unresolved issues, specifically with regard to strengthening links with strategic partners and prioritising the production of emerging technologies, since simply promoting production tends to perpetuate dependence on European funding to ensure the continuity of microchip production. On the other hand, adopting an excessively protectionist strategy could even increase trade tensions at international level and make European self-sufficiency more difficult, not least because the semiconductor supply chain is complex and deeply integrated at global level, making it difficult to completely break ties with international suppliers. It therefore remains to be seen whether in practical terms the European plan will be as effective as expected.

Nevertheless, Europe's strengths in this market are not insignificant, as it is strong in designing systems for key industrial sectors such as manufacturing and the automotive industry. In addition, the main differentiating factor in the future will be the provision of reliable hardware/software platforms that can support the non-functional requirements of the application domains. This is a competence in which Europe should be a leader, and to this end, the implementation of an integrated and coherent strategy with long-term effects is truly desirable.