Europe progresses toward shaping a new strategy aimed at boosting the development of its semiconductor industry. In its annual program, the European Commission has decided to accelerate the review of the Chips Act to the first quarter of 2026, six months earlier than planned.
This urgency is grounded in the need to hasten the achievement of an effective technological sovereignty for the Union in a geopolitical context marked by growing uncertainty. Not only does the new global scenario condition the reform of the Chips Act, but a preliminary analysis of the results obtained to date is also required, with the aim of identifying the lines of action to be implemented over the next five-year period. At the Alternativas Foundation we have sought to examine these issues in detail in a study that we will publish in a few days.
Origins, highlights and shadows of the EU’s current semiconductor strategy
It is a well-known story. Lockdowns to contain the COVID-19 pandemic disrupted semiconductor supply chains in 2021. Apple and Sony were forced to delay the launch of their flagship products due to chip shortages and, for the same reason, car production in Europe was halted to the tune of €100 billion. As a result, . The EU did not want to be left behind.
“The first results analyses at the end of 2024 began to reflect that the European strategy was not achieving its objectives. Mario Draghi called for in his report ‘a new, more articulated and coordinated approach to boost competitiveness’”
In 2022 Europe adopted a semiconductor strategy aimed at increasing its global manufacturing share in the sector from 9% to 20%. As the central instrument of this effort, the Chips Act was approved in 2023, built on three pillars: maintaining European leadership in R&D of semiconductors, driving the development of industrial projects, and establishing public-private collaboration mechanisms to monitor and reinforce the supply chain. The initial results analyses at the end of 2024 began to show that the European strategy was not meeting its objectives. Mario Draghi urged in his report for “a new, more articulated and concerted approach to boost the EU’s future competitiveness in this sector”.
Evidence of the Chips Act’s modest impact, highlighted by other public and private actors as well, was on the table. Although the sector’s research and innovation ecosystem had been expanded and strengthened, the contrast with private investments mobilized from public capital in the United States and Japan revealed the EU’s limited ability to attract relevant projects. Subsequently, the open crisis at Nexperia slowed car manufacturing again due to chip shortages, illustrating the limited progress in strengthening supply chain resilience. Moreover, rather than growing, the EU-27’s share in global chip manufacturing had fallen to 8%.
The new strategic context for reforming the Chips Act
Analyses of the Chips Act results agree on the shortcomings that have driven its limited impact. Among others, they point to the small centralized budget, an overly ambitious or unrealistic target, bureaucratic overhangs, and the lack of tangible emblematic common actions. Alongside these lessons learned, the strategic review will have to take into account changes in geopolitical and market conditions since the end of the pandemic.
In the United States, the second Trump Administration is shaping a technology hegemonial strategy. As J. D. Vance noted at the Paris AI Conference in February, the goal is for chips designed and manufactured in the U.S. to become the global standard and the foundation of the most powerful AI systems, while closing off avenues for adversaries to develop those capabilities. The relocation of the semiconductor production chain continues, but it is being done by substituting subsidies with incentives and tax credits for the domestic industry and with threats of tariffs on foreign players that do not relocate part of their manufacturing to the U.S. Access to Nvidia’s AI accelerators and other U.S. manufacturers has become governed by arbitrariness and has become another tool in the trade war. Technological cooperation has disappeared from the White House agenda, replaced by digital neocolonialism with the United States’ AI technology stack as a weapon.
“The biggest technological shift since the Chips Act’s adoption has been the massive emergence of artificial intelligence (AI), which is becoming the market’s preferred user of semiconductors”
Meanwhile, China has continued advancing its semiconductor industry despite trade restrictions. The Chinese ecosystem of companies has gained weight in the last five years, although it remains weak in manufacturing machinery—particularly in lithography and metrology— and requires substantial consolidation. Huawei has been the driver of this progress. The Shenzhen-based company has gathered around it a group of firms that have even helped it develop AI accelerators that locally compete with Nvidia’s penultimate-generation products. In mature chips, China has continued to gain ground in some areas, such as those aimed at automotive —to Europe’s detriment—.
The greatest technological shift since the Chips Act’s adoption has been the massive emergence of artificial intelligence (AI), which is configured as the market’s preferred user of semiconductors. AI accelerators are saturating certain links of the supply chain — advanced logic chips, high-speed memory, advanced packaging—. Europe lags behind in deploying AI compute capacity and does not reach 5% of the world’s available capacity; furthermore, its training in this domain through the development of AI gigafactories is subject to the whims of Trump-era policies. At the other end, EU industries in defense, automotive, and health continue to require chips with mature architectures, and the Nexperia crisis has revealed that dependence on China in this field is still growing.
A holistic review of Europe’s semiconductor strategy
The public consultation preceding the review of the semiconductor strategy involved more than two hundred sector players and end users. The European ecosystem calls for a strategy review that goes beyond merely reforming the Chips Act and complements other community instruments. Measures should be included to improve governance, strengthen the European sector ecosystem’s potential, and effectively guarantee the supply chain for critical industries and the deployment of artificial intelligence. Without aiming for exhaustiveness, we present some ideas for each of these three areas, which we detail in the analysis published by the Alternativas Foundation.
“The renewal of Europe’s semiconductor industrial policy must anchor its levers in the global ecosystem”
In governance, there is a need to strengthen the functions of the European Semiconductor Council. A first step should be to include peer-review mechanisms for national plans and relevant projects, thus facilitating alignment between Union policies and those of the member states. The Council should also be entrusted with preparing pre-action reports on supply-chain-impacting actions, such as trade restrictions or assessments of foreign investments. Finally, this forum must be the pillar on which the coordination of the semiconductor strategy with governance for advancing other critical technologies—AI, quantum, telecommunications—within Europe’s digital sovereignty framework is built.
The renewal of Europe’s semiconductor industrial policy must anchor its levers in the global ecosystem. As noted, despite the small size of its microelectronics ecosystem, Europe still retains sectoral strengths such as manufacturing equipment. Chips 2.0 should facilitate public aid in these areas that make Europe indispensable on the geopolitical stage. It should also invest in emerging technologies for the development of more efficient and powerful chips (photonics, chiplets) that provide Europe with new tools on the geopolitical stage. In the Multiannual Financial Framework, funding lines should be expanded to cover these aims.
To make this industrial policy effective, renewing the sector’s state aid framework would be advisable. First, by including new public financing instruments — tax incentives, subsidies for operating expenses, etc. —. Second, by speeding up the approval of aid, for instance by defining a sector-specific framework within the General Exemption Regulation by Category (RGEC). Third, by making more intensive use of institutional investors entering into companies in critical or strategic sectors.
“Around the forthcoming Chips 2.0 Act, the Union must build a new industrial development framework for the sector with a realistic objective that surpasses the current strategy’s limitations”
Fourth, Europe must safeguard certain sections of the supply chain in the global geopolitical battle. Regarding mature chips for critical industries, financing should explore acquisitions of minimum volumes in supply chains with minimum resilience and European sovereignty requirements. This would guarantee a minimal level of local capacities to respond to crises. In the realm of advanced chips, the EU should focus on breaking its external dependence regarding AI accelerators. Merely supporting design companies is not enough; there is also a need to guarantee a minimum supply of the logic and memory chips that enable their production through an intense digital diplomacy with the areas that manufacture them (Japan, South Korea, Taiwan).
The review of Europe’s semiconductor strategy must be more than a mere formality. The foundational role of these components in the technology value chain gives them a privileged place in policies for technological sovereignty. Around the forthcoming Chips 2.0 Act, the Union must build a new industrial development framework for the sector with a realistic objective that transcends the current strategy, with more effective governance and international partnerships with reliable economic areas that complement our gaps.
