The EU Chips Act: Why Specialisation and Innovation Matter Most

The global semiconductor industry is vital for AI, telecoms, electric vehicles and automation, but the recent shortages exposed vulnerabilities in supply chains. Europe holds only ten per cent of the market and lacks advanced manufacturing, prompting the EU Chips Act. By 2030, the act aimed to double Europe’s share in the industry. However, over-emphasising regional production capacity risks missing the mark; building specialised, resilient capabilities and securing critical supply chain segments is more strategic. EU states must collaborate, align policies, and strengthen the innovation ecosystem to compete globally.

The global microchip or semiconductor industry in 2025 is a cornerstone of the digital economy. It plays an essential role in technological instruments such as artificial intelligence, telecommunications, electric vehicles and also aids industrial automation. Over the past few years, the shortage of semiconductor chips, coupled with geopolitical tensions, has revealed vulnerabilities in the global supply chains. It has critically highlighted the need for regional self-sufficiency and resilience. Currently, the global semiconductor landscape is dominated by a few key players, such as Taiwan, through Taiwan Semiconductor Manufacturing Company (TSMC), which leads in advanced chip fabrication, producing most of the world’s most sophisticated semiconductors. Being home to companies such as Intel, Nvidia, AMD, and Qualcomm US is at the forefront of chip design and manufacturing equipment. South Korea, home to giants such as Samsung and SK Hynix, dominates the memory chip production segment, while Japan maintains a strong position in semiconductor materials and specialist equipment. Other countries such as Germany, the Netherlands and Israel specialise in high-value segments such as semiconductor equipment, automotive chips and unique applications.  (Dachs, 2023)

Challenges of EU

Despite some strengths in semiconductor equipment, materials and automotive applications, Europe holds only about 10% of the global semiconductor market share and lacks advanced chip fabrication capacity. In this context, the European Union (EU) has introduced the EU Chips Act, a strategic policy initiative aimed at boosting Europe’s semiconductor capabilities, reducing reliance on foreign chipmakers, and fostering homegrown innovation. A €43 billion initiative was launched to double the EU’s market share to 20% by 2030.  

What is the EU Chips Act?  

The EU Chips Act is structured around three fundamental pillars, each designed to strengthen Europe’s position in the global semiconductor industry. The first pillar, known as the “Chips for Europe initiative”, is centred on fostering innovation and catalysing investment across the semiconductor ecosystem. This initiative aims at providing robust support for research activities alongside fostering a cutting-edge infrastructure. It aims at establishing new design platforms and promoting the creation of advanced pilot production lines, enabling the testing and scaling of next-generation chip technologies within Europe. Importantly, this pillar also prioritises the growth of startups and small and medium-sized enterprises (SMEs), recognising their vital role in driving innovation. A special emphasis is placed on workforce development, with programs focused on training and knowledge transfer to ensure Europe can cultivate the skilled talent necessary for a competitive semiconductor sector. The second pillar shifts focus to the regulatory and investment landscape, aiming to create a more attractive environment for major semiconductor manufacturers. By streamlining legal frameworks and offering targeted incentives, the EU seeks to attract the establishment of large-scale fabrication facilities - often termed “mega fabs” – within its borders. This move was strategically placed to bolster Europe’s production capabilities, particularly in the manufacture of advanced node semiconductors, an area where the continent currently lags behind global leaders. The goal is to reduce reliance on external suppliers and enhance Europe’s autonomy in this critical industry. The third pillar addresses the need for resilience and security in semiconductor supply chains. It establishes comprehensive mechanisms for monitoring the entire value chain, enabling the early detection of potential disruptions. This includes provisions for coordinated crisis response, as well as options for joint procurement and strategic stockpiling among EU member states. Together, these measures were designed to safeguard against future shortages and ensure that Europe’s industries and consumers have reliable access to essential semiconductor components, even in times of global uncertainty.  (Camps, n.d.)

How is the EU Chips Act the Broader Return of the Industrial Policy in Old Europe?

The EU Chips Act is part of a broader return of industrial policy, which reflects a strategic shift towards more active government involvement in shaping technological and industrial capabilities of the EU. Departing from the previous market-driven models, the act explicitly permits state aid and launches large-scale investment initiatives aimed at reinstating Europe’s technological comparative advantage in the field of semiconductors. The creation of oversight bodies such as the European Semiconductor Board and the Chips Joint Undertaking signifies deliberate government steering and structured market intervention, which were the key characteristics of the traditional industrial policy regimes. Additionally, the act prioritises “first-of-a-kind” and high-tech projects, targeting investments into innovation and industrial capacity building, much like the ancient efforts to cultivate national champions in critical sectors. While earlier European initiatives, such as JESSI and Electronics for Europe, fell short of their ambitions, the Chips Act represents a renewed commitment to strategic industrial intervention.  

Why Regional Share of Chip Production Capacity Should Not Be the Guiding Light for Policy Making?

The regional share of chip production capacity should not be guiding policymaking, as it did for the EU. Rather than focusing solely on increasing Europe’s percentage contribution in the global chip manufacturing capacity, the act’s main focus should have been on building resilience, securing critical segments of the supply chain. Several key considerations support this viewpoint. First, the semiconductor industry is highly specialised and diverse; different types of chips require distinct manufacturing processes and facilities dedicated to them. Expanding general manufacturing capacity does not automatically translate to strategic independence or supply security. Second, attempting to localise production without acknowledging global dynamics risks fragmentation. Third, any investment in research and development cannot miraculously result in innovation overnight. Until this ripple effect shows itself, true competition cannot be eliminated. Japan, for instance, strategically focuses on dominating critical niches and creating global technological dependencies, which sustain its long-term relevance. Such an approach over a sustained time can ensure resilience and innovation for the sector. (Bhandari, 2023)

How Can Member States Help?

To improve the situation, EU member states should adopt a collaborative, informed, and strategic approach. This can begin with a thorough mapping of their domestic semiconductor ecosystems to identify strengths and weaknesses. Building on this understanding, governments should establish clear, long-term policy objectives for their semiconductor sectors, ensuring these are aligned with both national priorities and broader EU strategies. Continuous peer-to-peer exchanges among member states can help share insights, best practices and the rationale behind adopting specific strategies, fostering a deeper understanding of different priorities and encouraging coordinated action. Finally, member states should actively support and contribute to European Commission initiatives aimed at developing a resilient and competitive pan-European semiconductor ecosystem rooted in shared goals and collaborative governance. (Kleinhans, 2024)

The renewed focus on semiconductors through Chips ACT marks a significant shift in the industry. However, the success of the policy will depend on balancing ambition with pragmatism, avoiding over-reliance on headline targets like market share, and instead prioritising specialised manufacturing and robust innovation ecosystems.

References

Bhandari, K. (2023). The Geopolitics of the Semiconductor Industry and India’s Place in It. https://about.jstor.org/terms

Camps, J. V. (n.d.). The European Chips Act: Europe’s Quest for Semiconductor Autonomy.

Dachs, B. (2023). The European Chips Act Standard-Nutzungsbedingungen. https://hdl.handle.net/10419/274201

Kleinhans, J.-P. (2024). The Missing Strategy in Europe’s Chip Ambitions Member States Must Drive the Next Steps.

This article is written by EICBI Research Intern Shreya Sehgal