The EU’s primary legislative response to rising semiconductor protectionism from America and China passed the European Parliament on Tuesday, July 11th, as MEPs voted in favour of the EU Chips Act, with 587 votes in favour, 10 against, and 38 abstentions.
The Act channels €43 billion worth of subsidies and other support into the domestic European semiconductor industry. The vote is significant because it comes at a time when many pundits note that Europe is becoming strategically vulnerable to supply chain shocks from China.
The Act establishes “competence centres” to nurture innovation and mechanisms to sound the alarm when the EU becomes too dependent on a single supplier in the supply chain. This is the latest tranche of state aid directed to the European semiconductor industry after the Commission earmarked €8.1 billion for homegrown projects in June.
While the Chips Act had near-unanimous approval from Parliament, some market-oriented MEPs said that Brussels was not suited to set industrial policy for the entire bloc and that the subsidies would not offset structural problems with innovation in Europe.
Markus Buchheit, a German AfD MEP who sits on Parliament’s Industry and Research Committee, likened the Act to a type of European “megalomania.” He added that previous EU policies, announced with great fanfare, normally fell at the first hurdle. “The EU should respect the principle of subsidiarity and leave industrial policy in the hands of the nation states,” he commented. He emphasised that member states were most capable of setting their industrial policies.
After Parliament’s approval, the Chips Act will move to the European Council for final consent before becoming law. The Act is likely to benefit the Netherlands, which, as home to Europe’s largest semiconductor manufacturing facilities, has been leading the charge to advance semiconductor protectionism in Brussels.
Europe is experiencing a sharp fall in its share of the global semiconductor market, falling below 10%. The objective of the Chips Act is to have 20% of worldwide semiconductor production manufactured in Europe by 2030. Many critics of the green transition say that the artificially inflated hunger for green technology in Europe has created a type of engineered dependency that can and will be exploited by foreign powers, such as the United States and China, as exemplified by the semiconductor issue.
The EU Chips Act follows from a similarly titled piece of legislation from the Biden administration, as well as similar laws passed by the European Parliament regarding raw materials. As a result, many experts predict a looming trade war with China. The geopolitics of semiconductors has already changed the foreign policy of many EU nations as Italy prepares to leave the Chinese Belt and Road Initiative, an infrastructure project, in exchange for a trade deal with Taiwan, a major producer of semiconductors and the target of Western interest in the South China Sea.
Similar to the EU’s response to the Biden administration’s protectionist Inflation Reduction Act (IRA) designed to promote American dominance over green tech manufacturing, there is a feeling that the EU simply cannot compete with larger and more coherent economic blocs such as the United States regarding industrial policy.
