The European Union's "Chips Act" officially came into effect on September 21. The European Commission announced that the legislation aims to promote the industrialization of key technologies, encouraging both public and private sectors to invest in chip manufacturing facilities and their suppliers.
This move by Europe follows the U.S. government's introduction of the "Chips and Science Act" in August of the previous year. The European response not only signifies a return to industry policies centered around financial subsidies in major Western economies but also indicates a potential shift from an East Asia-centric global semiconductor supply chain to a more regionalized model.
Early Results of the Chips Act
At the heart of the "Chip Act" is the EU's plan to invest 43 billion euros in financial subsidies by 2030, with 11 billion euros earmarked for the research and development of advanced chip technologies.
Specifically, the EU will allocate an additional 3.3 billion euros within its current financial framework by 2027, on top of the existing 2.6 billion euros. The extra funds will come from the national budgets of member states.
The legislation aims to boost Europe's global chip production share from the current 9% to 20%. Given the EU's projection that global chip demand will double by then, this means the EU hopes to quadruple its current chip production capacity in the coming years. This includes financing the construction of three pilot production lines worth between 1 billion and 2 billion euros in the next year, challenging the "duopoly" formed by Samsung and TSMC.
The Chip Act began taking shape in early 2022 and was seen as a turning point in European economic policy. Notably, the European Commission's initial optimistic estimate for the total subsidy was only 30 billion euros. The increase in the subsidy amount reflects Europe's determination to rejuvenate its domestic chip industry.
Even before the Chip Act came into effect, EU member states, led by Germany, had already successfully attracted investments from major chip manufacturers, including giants like Intel and TSMC.
In March 2022, while the act was still in the proposal stage, Intel announced a 17 billion euro investment to build two chip factories in Magdeburg, Germany. The German government agreed to provide Intel with a 6.8 billion euro subsidy. In June, citing inflation and energy costs, Intel requested additional subsidies from Berlin. The final agreement raised the subsidy to 10 billion euros, with Intel increasing its investment to 30 billion euros and planning to produce advanced 2-nanometer chips in Germany. The German factories are expected to start production before 2027.
Meanwhile, Intel also announced a $4.6 billion investment to build a packaging and testing factory in Poland, establish a new research and development center in France with nearly a thousand employees, make France the hub for European contract design, and collaborate with the Barcelona Supercomputing Center in Spain to establish a joint laboratory.
Intel's total investment in various European countries is expected to reach 80 billion euros.
On August 8, TSMC announced a joint venture with Bosch, Infineon, and NXP to invest approximately 10 billion euros to build a semiconductor factory in Dresden, Germany. TSMC will directly invest 3.5 billion euros and hold about 70% of the shares, while the German government will provide a 5 billion euro subsidy. This factory is also expected to start production in 2027.
The investments by TSMC and Intel in Europe mean that among the traditional three semiconductor companies with advanced manufacturing processes, only Samsung has yet to make a statement.
Beyond these three giants, GlobalFoundries and STMicroelectronics announced in June that they would invest 7.5 billion euros to build a new wafer factory in France. In February, U.S. semiconductor manufacturer Wolfspeed announced a $3 billion investment to build a chip factory in Saarland, Germany.
The International Semiconductor Industry Association SEMI's "World Wafer Factory Forecast Report" for the last quarter of the previous year stated that of the 84 large-scale chip manufacturing plants planned globally in the past three years, 17 are located in Europe. This proportion alone suggests that the European Chips Act's 20% target has already been partially achieved.
Industrial Policy Resurgence: Market Forces Taking a Backseat?
Behind the initial success of the European Chips Act lies a profound change: the resurgence of industrial policy, which had been absent from the EU political stage for many years.
In addition to the direct financial subsidy of 43 billion euros, a common measure of industrial policy, the European Commission had already relaxed internal subsidy rules during the proposal phase of the Chips Act, making the definition of government subsidies in the semiconductor field more ambiguous.
For a long time, the EU, as a supranational institution, has restricted the internal subsidy policies of its member states through Article 107 of the Treaty on the Functioning of the European Union to ensure the fairness of the internal market. For example, Poland's 6 billion zloty policy to support its agriculture due to natural disasters in May required Brussels' approval.
However, since the relaxation of internal subsidy rules during the COVID-19 pandemic, the EU's restrictive attitude towards financial subsidies has been gradually fading in more and more industries.
Apart from the semiconductor field where the EU itself is providing subsidies, the internal subsidy provisions for green technologies such as photovoltaics, heat pumps, wind power technology, and the extraction of key raw materials have essentially become obsolete. Behind the diminishing mention of subsidy provisions lies the EU's increasingly active industrial policy, frequently appearing on the European Commission's agenda in recent years.
Especially after the outbreak of the COVID-19 pandemic, comprehensive strategic documents such as the "European Data Strategy," "European Green Deal," and "New European Industrial Strategy" were successively introduced. The most representative are the European Battery Alliance EBA and the European Super Cloud Program Gaia-X. The former includes subsidies from 12 member states totaling 2.9 billion euros to establish a European domestic power battery industry chain, while the latter also received direct financial support of 2 billion euros from the EU budget and 6 billion euros from the budgets of member states.
French Finance Minister Bruno Le Maire published a book titled "The New Empire" in 2019, advocating for European industrial policy. At that time, one of the main reasons the French had to defend industrial policy through propaganda channels was the lack of a tradition of deep government intervention in the economy in some member states, especially Germany.
However, with Germany becoming the biggest winner of investments from Intel and TSMC under the framework of the "Chips Act," Berlin's political direction is subtly changing. For example, German Economic Affairs State Secretary Franziska Brantner once stated that the act "strengthens Europe's semiconductor production, making us stronger and more sovereign in this strategically important industry."
In fact, it was precisely after German Ursula von der Leyen became President of the European Commission that the commission proposed industrial policy on the fast track, with more than 30 similar documents issued during her tenure. The Federation of German Industries BDI also stated: "The new semiconductor strategy is an important step in strengthening Europe as a global chip production participant."
Even in the German academic world, which believes in economic liberalism, support for industrial policy has recently gained the upper hand. Dalia Marin, Professor of International Economics at the Technical University of Munich, said: "The geographical concentration of semiconductor production is a risk. Europe needs to diversify its supply chain."
The European Union's "Chips Act" and the subsequent investments from major chip manufacturers signify a profound shift in the global semiconductor landscape. The act not only represents Europe's ambition to rejuvenate its domestic chip industry but also indicates a broader trend of Western economies returning to industrial policies centered around financial subsidies.
The resurgence of industrial policy in Europe, especially in the semiconductor sector, is a response to the challenges posed by the globalized supply chain and the need for strategic autonomy in key industries. As the EU aims to increase its global chip production share and attract significant investments, it remains to be seen how these efforts will reshape the global semiconductor industry in the coming years.
