EU Coordination Needed on Semiconductors: Strategies for Improving Chip Production within the Union

In a concerted effort to bolster European competitiveness and strategic autonomy in the semiconductor sector, nine European countries have formed the Semiconductor Coalition. Founded in March 2023, the coalition includes Germany, the Netherlands, Belgium, France, Italy, and several other member states.

The coalition members are European champions in Research and Development (R&D), equipment manufacturing, materials and testing, making them key players in the semiconductor industry. To help Brussels overcome the hurdles in this critical sector, the coalition aims to build strong public-private partnerships.

The European Union (EU) has already taken steps to strengthen its position in the semiconductor sector. The EU plans to streamline existing financing for critical technologies under its Competitiveness Fund in the next budget. Moreover, the EU's biggest member states have the sway to help shape the bloc's next seven-year budget negotiations.

However, financing for the EU's semiconductor sector remains fragmented, with only €3.3bn of the €100bn announced coming from the EU budget. Member states are expected to do the heavy lifting. The Semiconductor Coalition plans to take coordinated action, including seeking an envelope for semiconductors under the EU budget to support the chips industry.

Industry groups in the EU have criticized the 2023 Chips Act for excessive red tape and a focus that is too heavily on manufacturing. In response, the EU is planning a new Chips Act that will focus on using the levers it holds in the semiconductor game, such as Dutch company ASML's monopoly on extreme ultraviolet lithography machines.

Brussels should take inspiration from Japan's economic security strategy, which is based on maintaining, boosting, and obtaining strategic indispensability to resist economic coercion. The Semiconductor Coalition suggests that strategic indispensability should be the base of the EU's new industrial recipe to ensure the EU is at the semiconductor table and not on either Washington's or Beijing's menu.

The Semiconductor Coalition's actions could make a budget allocation for the chips industry even more relevant and palatable as member states increase their defence spending. For instance, the Biden administration aims to accelerate the growth of the domestic semiconductor industry in the US, and European policymakers should take note.

The European Commission's mapping of the semiconductor sector currently lacks the detail needed to guide policy. To address this, the EU Court of Auditors has warned that the target in the bloc's 2023 Chips Act to double its share in the world's semiconductor supply from 10% in 2020 to 20% in 2030 is "essentially aspirational".

The Semiconductor Coalition's actions are not without precedent. In 2024, the Japan Investment Corporation bought and delisted JSR Corp, the world's largest photoresist maker, to ensure this indispensable company remained in Japanese hands. Similarly, German firm Zeiss makes optical systems necessary for ASML's machines to be produced, highlighting the importance of strategic indispensability in the semiconductor sector.

In the past, the EU has faced criticism for its inaction in the semiconductor sector. For example, Donald Trump initially excluded chips from his 10% import tariff hikes, but later announced plans to investigate the electronics supply chain. European policymakers should learn from these examples and take decisive action to secure the EU's position in the global semiconductor market.

In conclusion, the Semiconductor Coalition's efforts to strengthen European competitiveness and strategic autonomy in the semiconductor sector are a positive step towards ensuring the EU is at the forefront of this critical industry. By building strong public-private partnerships, seeking budget allocations, and learning from successful strategies in other regions, the EU can secure its position in the global semiconductor market and boost its economic growth.

EU Coordination Needed on Semiconductors: Strategies for Improving Chip Production within the Union