The European Chips Act: Ambitious Vision or Empty Shell?

It was recently announced that the EU will invest €133 million in pilot production facilities for photogenic semiconductors in the Netherlands, part of wider efforts to move Europe away from its dependence on Asia for this component crucial to so many industries. It is a step in the right direction and policy efforts are being made, but many say they fall short.

With geopolitical tensions on the rise, the European Union has finally realised that increasing production of semiconductors in crucial for reinforcing European economic resilience and competitiveness in the global technology sector. The key role played by semiconductors in today’s global economy cannot be understated. Technologies from smartphones to IoT, advanced robotics to artificial intelligence all rely on these small chips whose development and production has over the years been concentrated in Asia, notably Taiwan. Around 80% of all semiconductors are now produced in Asia, with the remaining 20% shared around Europe and North America.

Why semiconductors are a matter of sovereignty 

The globalised economy suffered serious destabilisation following the Covid-19 pandemic, and this led to a concerning shortage in semiconductors and a dilapidation of global supply chains, whose significant deficiencies were exposed and made worse by rising geopolitical tensions.

But Europe’s current global share of semiconductor production is approximately 10%, a stark contrast to its historical dominance in the field during the 1990s. This decline stems from several factors, including outsourcing manufacturing to Asia, underinvestment in R&D, and a lack of cohesive industrial policies. Taiwan Semiconductor Manufacturing Company (TSMC) alone controls over 50% of the global foundry market. ” Chips are crucial in almost every device. But the pandemic has also painfully exposed the vulnerability of chips supply chains,” explained European Commission President Ursula von der Leyen back in 2022 at the launch of its multi-year investment plan into the microchip market. While Europe excels in certain segments—such as lithography through ASML and automotive semiconductors via Infineon—its inability to design and manufacture cutting-edge chips (sub-7nm) leaves it vulnerable to supply chain disruptions and technological obsolescence.

Moreover, the semiconductor industry has become a key arena for geopolitical influence. The United States, through its $52 billion CHIPS Act, is bolstering domestic chip manufacturing and innovation to reduce reliance on Asian supply chains. In the light of the powerful American mobilisation, responses are expected on the European continent. Philippe Notton, founder and CEO of SiPearl, a French microprocessor startup which specialises in designing high-performance microprocessors for supercomputers and AI application states that “First of all, I believe it is essential to put in place a ‘European Buy Act.’ Our funding, our R&D, and our industries must be much more at the service of Europeans. In addition, we need the political willingness to fight everything to do with American extraterritoriality. The Chinese are beginning to follow the same logic”

As a matter of facts, China has committed $150 billion to achieve semiconductor self-sufficiency by 2030, with companies like SMIC advancing rapidly despite sanctions. Sanctions that are getting tougher with a new wave of restrictions announced by the Biden administration aiming “protect our technology from being used by our adversaries in ways that threaten our national security” according to US National Security Adviser, Jake Sullivan. The United States’ mistrust of China is growing and is set to reach a climax with Donald Trump’s return to the White House in a few days even though the Biden administration has just taken a major decision with far more drastic export rules. 

The European Chips Act

To achieve future independence in the semiconductor sector, the EU introduced the European Chips Act (ECA) which came into force in September 2023. This policy drive, designed to address semiconductor shortages, bolster Europe’s technological leadership and ensure economic sovereignty, aims to have European semiconductor production at 20% by 2030. This includes “promises for investments of the order of 100 billion euros to expand the manufacturing capacity within the EU by 2030,” according to European Commission official Thomas Skordas. Part of this plan includes the Chips Joint Undertaking, a European public-private partnership to promote research and development in the semiconductor industry. The aforementioned investment in the Netherlands and a push to create a semiconductor hub in Poland are just two examples of this strategy in action.

But while the underlying philosophy of the Act has been widely lauded, its implementation and focus fall short, failing to provide the necessary support to innovative European companies that could drive the technological future. Europe is at real risk of falling behind in this global race. While the European Chips Act is ambitious, it lacks the scale and focus of American and Chinese initiatives. Without prioritising innovation, boosting R&D investment, and fostering public-private partnerships, Europe could remain a consumer rather than a producer of transformative technologies, leaving it vulnerable to economic and strategic risks.

SiPearl’s CEO, Philippe Notton explains “The European Chips Act is a good start. If we manage to mobilise more public funds in the semiconductor sector to get things moving again, as is being done in most countries, that will be a positive thing. Nevertheless, we need to take a close look at who benefits from this funding.”

Indeed, the ECA has been criticised for misallocating resources by disproportionately benefiting well-established companies such as ASML and STMicroelectronics. While these companies are undeniably global leaders in their respective domains—lithography and semiconductor production—they already hold significant market positions and have less need for public subsidies to maintain their competitiveness. Even the Taiwanese company TSMC was allocated significant EU subsidies (to the tune of €5 billion) to build a new plant in Dresden, Germany, and American firm Intel was allocated €10 billion in funding from the German government for a new plant in Magdeburg (although the Bundesregierung is now looking to recoup this sum following huge construction delays).

This approach reinforces the status quo rather than addressing Europe’s broader vulnerabilities in the semiconductor supply chain. Philippe Notton underlines the concerns of many European microchip firms: “It is understandable that large groups such as Infineon, Bosch, STM and ASML should benefit from this windfall, but the problem is that start-ups have been left by the wayside”. In other words, the Chips Act is poorly targeted and nearly ending up benefiting not Europeans, but Americans… Why should European public funds enrich any American company?

A Missed Opportunity?

European semiconductor startups face significant barriers to scaling, even with the Chips Act in place. Finnish startup IQM Quantum Computers is one example. The firm is committed to advancing quantum processors, another critical frontier. The company’s management asserts that “IQM’s vision of taking quantum computing to the next level by advancing this disruptive technology from the laboratory to industrial scale in order to remain at the forefront of the innovation race for quantum advantage is aligned with France’s quantum strategy (eh company is going to build a fabrication facility in France) and broader European initiatives such as the EU Chips Act”. However, European startups like IQM or SiPearl struggle to access the kind of funding and strategic backing that their international competitors enjoy. Despite the strategic importance of these firms, their potential is stifled by limited access to funding, fragmented ecosystems, and bureaucratic inertia. While other global players, notably in the U.S. and Asia, deploy substantial resources to nurture their semiconductor sectors, Europe risks being left behind. The Chips Act, as it stands, does not adequately support startups or foster innovation across the entire value chain. Instead, it risks creating an “empty shell” – a framework ambitious in scope but insufficient in execution.

For Europe to remain relevant in the global technology race, a paradigm shift is needed. Policymakers must adopt a more diversified funding strategy that prioritises groundbreaking innovation alongside manufacturing scale. This means directly investing in high-risk, high-reward ventures and fostering collaboration across borders to unlock the full potential of Europe’s semiconductor ecosystem. Without this recalibration, the European Chips Act will likely fall short of its lofty ambitions, leaving Europe to play catch-up in a race it can’t afford to lose.