Chip production: EU seeks to reduce dependence on Asia and announces $48 billion plan

The European Union on Tuesday announced a $48 billion (roughly Rs. 3,58,520 crore) plan to become a major producer of semiconductors, seeking to reduce its reliance on Asian markets for the component that powers everything from cars to hospital ventilators and game consoles.

At a time when natural gas shortages and Europe’s dependence on Russia for energy show the political risks of economic dependence, the 27-nation bloc is working to strengthen its economic independence in the critical semiconductor industry with its chip law.

“Chips are at the center of the global technology race. They are, of course, also the foundation of our modern economies,” said European Commission President Ursula Von der Leyen. The plan still needs the support of the European Parliament and Member States.

The EU move mirrors US President Joe Biden’s $52 billion (about Rs 3,88,398 crore) to invest in a domestic chip production sector to ensure increased production in the US.

As the economy rebounded from the COVID-19 pandemic over the past year, there has been a bottleneck in the semiconductor supply chain. In Europe, some consumers have had to wait up to almost a year to get a car due to a lack of spare parts.

“The pandemic has also painfully exposed the vulnerability of its supply chains,” von der Leyen said. “We have seen entire production lines come to a standstill.”

“As demand increased, we could not deliver as needed due to lack of chips,” she added. As a result, factory belt lines came to a halt, some factories had to temporarily shut down, and workers became unemployed due to lack of electronic parts.

Semiconductors are the tiny microchips that act as the brains of everything from smartphones to cars, and a prolonged shortage has highlighted the importance of chipmakers, most of which are based in Asia, to blockchains. global supplies.

Von der Leyen said the European chip law will link research, design and testing and coordinate European and national investments. The €43 billion (about Rs. 3,66,985 crore) plan pools public and private funds and allows state aid to get massive investment off the ground.

The prospect of massive industrial subsidies seems at first glance like a blast from Europe’s past, when excessive state involvement stifled creativity and kept ambitious newcomers out of the market. The EU itself has tried to remedy this over the past decades by rigorously verifying that state aid does not hinder competition.

The European Commission has promised that every Chips Act project will be carefully scrutinized on anti-competitive grounds, but the sheer size of the establishment of production facilities demands a boost if the bloc is to become a global player.

“Europe needs advanced production facilities, which of course entails a huge initial cost. We are therefore adapting our state aid rules,” said von der Leyen.

Today, EU countries hold only 9% of the global semiconductor market share, and von der Leyen aims to increase this share to 20% by 2030. Since global market production is expected to roughly double over the same period, “that basically means quadrupling our efforts,” she said.

She said the plan will add 15 billion euros ($17 billion or around Rs. 1,26,985 crore) in public and private investments on top of funds already committed in the EU budget.

The EU also wants to get involved in chip production for geopolitical reasons and to become more resilient in its strategic independence. Still, von der Leyen reached out to cooperate.

“Europe will establish on-chip partnerships with like-minded partners, for example the United States or, for example, Japan,” she said.

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