The European Chips Act: An Illusion of Tech Sovereignty?

Semiconductors, such as microchips, are one of the most essential components of the digitization process and are employed in all the electronic devices and machines we use today. Since its invention their market has grown exponentially, especially within the last decade. Revenues reached US$440 billion in 2020, and is expected to reach US$50.9 billion in 2021. 

The global COVID-19 pandemic had negatively impacted the semiconductor market as supply chains were disrupted. This not only led to a global shortage of microchips, but posed an even bigger problem for European manufacturers as the region primarily outsourced their microchips from Asian suppliers. European car manufacturers bore the burden greatly, they incorrectly speculated the pandemic would result in a decline of sales, thus cancelled their chip orders. However, the unexpected recovery of demand meant that they were ill-equipped with supplies to satisfy them. The cancellation of orders meant that chip manufacturers had more commitments to IT sectors, reducing their capacity to supply car chips. The limited availability of new vehicles that resulted, matched with the rising prices of microchips, had a far-reaching impact on the affordability of new vehicles and consumer choice.

To address the chip shortage and in attempts to get Europe back in the tech race, the European Chips Act was announced by European Commission President Ursula von der Leyen in her State of the European Union address. The Chips Act covers three dimensions:

  1. A European Semiconductor Research Strategy to push research ambitions of Europe to the next level.
  2.  A collective plan to enhance European production capacity to ensure Europe is prepared to tackle any possible future disruptions to the semiconductors supply chain.
  3. A framework for international cooperation and partnership to reduce overdependence on a single country or region. 

The proposal of the European Chips Act ignites hope amongst the European market by creating a vision and compelling players to believe that tech sovereignty is within their reach.

Despite how convincing the Act is strategically, the Dutch are not convinced. They believe that the European Union should not decouple from the global semiconductor supply chain in efforts to be self-sufficient. A paper published on Netherland’s government website warned that decoupling would be a mistake and pointed towards the success of several Dutch companies as evidence. They illustrate their point further by stating that ‘European interests are best served by an open ecosystem that remains focused on attracting investment, accelerating innovation and adding market value. Diversification and mutual interdependence promote resilience and prevent one-sided dependencies.’ They instead proposed that instruments be put in place to prevent key takeovers of chipmakers that would negatively impact Europe and its manufacturers.

The contradictions presented by the Netherlands thus bring into question whether the European Chips Act is an illusion of success.

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