EU may struggle to catch up with U.S., Asia in chips subsidies race

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BRUSSELS/STOCKHOLM – The European Union on Tuesday approved a 43 billion euro ($47 billion) chip subsidy plan, but a relatively modest budget and lack of a home market for high-end chips and red tape could hinder catch-up efforts. United States and Asia.

The size of subsidies under the EU Chips Act, which aims to entice the world’s top chipmakers to build factories in the bloc and double their share of global production to 20% by 2030, lags behind the US CHIPS Act’s $52 billion.

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The legislation aims to ensure the region has supplies of vital components after the COVID-19 shutdown caused major shortages that hurt production of everything from cell phones to cars and refrigerators.

It also wants to reduce its dependence on Asia. Taiwan accounts for more than 60% of global chip production and concerns are growing about the rising tensions between Taipei and Beijing.

Legislation that makes it easier for EU governments to provide funding has already caught the interest of Intel, which has chosen Germany for a new blockbuster chip-making park backed by €6.8 billion in subsidies.

STMicroelectronics has also cooperated with GlobalFoundries and the Taiwanese company TSMC is in talks with the German state of Saxony about building a factory there.

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Richard Windsor of research firm Radio Free Mobile said relatively modest European support could hinder its ambition.

“Subsidies are still likely to be lower than those available in Asia again, underlining that semiconductors at the moment are about geopolitics, not economics,” he wrote in a note to clients ahead of the EU deal.

South Korea, a base for companies like Samsung, has also revealed plans to spend hundreds of billions of dollars to boost its chip industry over the next decade. Taiwan – home of TSMC – Japan, India, Vietnam and Thailand are all working on incentives to attract chip industries to their countries.

“Europe and the United States will struggle to compete against Asia,” said Windsor.

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good start

Christopher Cetera, a research fellow at the Center for European Policy Analysis, said the EU chip law is a good start given that the EU has no choice but to join the subsidy race, but the bloc must play to its strengths in the chip industry.

The Dutch company ASML dominates the manufacture of the machinery required to produce the latest chips used in phones for cars, the German company Zeiss leads in the manufacture of glasses and camera lenses, while the Belgian company Solvay and the German company BASF provide important chemicals.

Industry experts say the EU’s regulatory red tape, which requires approval by 27 member states, could be problematic.

“The United States can get the money approved by Congress, but for Europe to get the money approval it has to go through all the member states, and if France and Germany benefit, that’s a bit of a problem,” Cetera said.

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Catching up on the chip race is about more than building factories, said Anielle Guedes, senior research analyst at IDC Technologies, and the chip law recognizes this with its focus on developing the skilled labor of the future.

“One of the things the industry needs most today is to raise the bar for the people who will work in the industry in the years to come,” she said.

“Other than that, you can put money into something like production facilities, but that’s not the kind of thing where you can shove capital in and out on the other side with whatever technology you want.”

All measures to boost production may create their own problems in the future as global supply chains return to normal levels, said Rem Korteweg of the Clingendael Institute.

“There are already indications that the worst may be over when it comes to semiconductor stresses, until we run into the risk of a heavily subsidized oversupply two years later,” he said.

(Reporting by Fu Yun Che in Brussels and Subantha Mukherjee in Stockholm; additional reporting by Toby Sterling in Amsterdam; Editing by Josephine Mason and Emilia Sithole-Matares)