Chip production: EU seeks to alleviate Asian dependence, announces $48 billion plan

Deepak Gupta February 9, 2022
Updated 2022/02/09 at 5:09 AM

The European Union on Tuesday announced a $48 billion (approximately INR 3,58,520 crore) plan to become a major semiconductor producer, seeking to reduce its dependence on Asian markets for the component that powers everything from cars to fans. hospitals 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 moving to increase its economic independence in the critical semiconductor sector with its Chip Act. .

“Chips are at the heart 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 EU parliament and member states.

The EU move reflects US President Joe Biden’s $52 billion (approximately INR 3,88,398 crore) effort to invest in a national chip production sector to ensure more production takes place in the US.

As the economy recovered from the COVID-19 pandemic last year, there was a bottleneck in the semiconductor supply chain. In Europe, some consumers had to wait almost a year to buy a car due to a lack of spare parts.

“The pandemic has also painfully exposed the vulnerability of their supply chains,” von der Leyen said. “We saw entire production lines stopped.”

“While demand was increasing, we were unable to deliver as needed due to a lack of chips,” he added. As a result, factory belt lines stopped, some factories had to temporarily close, and workers were left unemployed because of a lack of electronic parts.

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

Von der Leyen said Europe’s Chip Act will link research, design and testing and coordinate national and EU investment. The €43 billion (approximately Rs. 3,66,985 crore) plan brings together public and private funds and allows state aid to get the massive investments off the ground.

The prospect of massive industrial subsidies at first seems 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 been trying to undo this for the past few decades with a rigorous check that state aid was not impeding competition.

The EU Commission has promised that each Chips Act project will be carefully scrutinized on anti-competitive grounds, but that the size of the creation of production facilities requires a push for the bloc to become a global player.

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

EU countries now only have 9% of the global semiconductor market share, and von der Leyen wants to increase that to 20% by 2030. As global market output is set to double over the same period, “it basically means quadrupling our efforts.” , she said.

She said the plan will add 15 billion euros ($17 billion or approximately INR 1,26,985 million) in public and private investment on top of funds already committed to the EU budget.

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

“Europe will build chip partnerships with like-minded partners, for example the US or, for example, Japan,” she said.

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