EU’s Chips Act Set to Reduce Dependency on US and Asian Semiconductors with Expected Approval on April 18

The European Union is set to approve a plan worth EUR 43 billion to bolster its semiconductor industry and catch up with Asia and the United States. The proposed legislation, known as Chips Act, aims to increase the bloc’s share of global chip production from its current level of 10% to 20% over the next decade. The move comes after the EU faced global supply chain issues that hurt a range of businesses, from carmakers to manufacturers, spurring the initiative to cut reliance on Asian and US semiconductor products.

April 18 Negotiations

According to sources that declined to be identified, EU countries and lawmakers are likely to clinch a deal on April 18 during their monthly session in Strasbourg. Discussions will primarily focus on the details of funding for Chips Act, which the sources say has been one of the primary issues to date, with a EUR 400 million shortfall. However, the EU executive has managed to come up with the bulk of the funding, making lawmakers optimistic about reaching a deal.

Funding Scope Expansion

While the Commission initially proposed to fund only cutting-edge chip plants, EU governments and lawmakers have broadened the scope to cover the entire value chain. Thus, this will include research and design facilities and older chips components. Lawmakers underscored Belgium-based IMEC as one of the significant reasons for increasing the funds for European research and development (R&D). IMEC is one of the world’s leading innovation hubs in digital technologies and nanoelectronics, with an ecosystem of over 600 significant industry players.

EU funding for the entire value chain will also help to address the complaints of smaller EU countries that feel that they were left out after Intel chose Germany for its new megachip manufacturing complex following the launch of Chips Act. Franco-Italian firm STMicroelectronics has teamed up with GlobalFoundries to build a EUR 6.7 billion chip factory in France, which is set to receive funding from the government.

The Potential Benefits of Chips Act

Initially, the EU planned to depend heavily on outside producers for its chips. However, with the surge in demand for these vital components globally, this has exposed vulnerable points in supply chains, affecting not only Europe but also other significant economies worldwide. For instance, the current semiconductor chip shortage has resulted in automakers facing production constraints and scaling back or temporarily shutting down production lines across Europe and beyond.

Chips Act seeks to prevent a similar situation in the future by supporting the domestic chip industry’s development, improving supply chains and making Europe’s economic rebound more consistent.

The Value of Semiconductors in Today’s World

Semiconductors or “computer chips” are a fundamental component of nearly every industry affected during the COVID-19 pandemic. They exist in approximately 80% of large appliances and electronic devices, including essential medical equipment such as ventilators, heart monitors, and X-ray machines. Thus, the demand for semiconductors has risen astronomically, creating a supply deficit that has prompted the EU and other significant economies to ramp up production in their respective territories.

The Chips Act’s Impact on Global Supply Chains

Chips Act will likely have a significant impact on global semiconductor production and supply chains worldwide. First, it demonstrates the EU’s determination to reduce its reliance on Asian and US semiconductors, which currently accounts for over 75% of worldwide supply. Second, a successful domestic production initiative could spur the development of the advanced chips required for artificial intelligence, 5G, and quantum computing technologies, improving their global accessibility.

The Overall Effect on European Businesses

Chips Act could also help European businesses become more competitive globally, reducing the current dependence on foreign firms for essential components such as computer chips. The Act would encourage the development of a skilled workforce, supported by world-class education and research facilities. In conclusion, Chips Act could propel Europe forward in building a sustainable tech-based economy, enabling resilient economic growth and more balanced international supply chains.

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