European Union Introduces New Industrial Policy, With A €43 billion Plan To Fix Europe’s Chip Shortage

The ongoing crisis occasioned by the demand for integrated circuits known popularly as ‘semiconductor chips’ being greater than the supply has affected major production industries in Europe and other parts of the world, leading major price increases, shortages and queues amongst consumers for automobiles, graphic cards, video game consoles, computers, smart phones  and other products  that require its use.

The European Union, not oblivious of this shortage, has introduced a new industrial policy with the mandate of making the bloc a significant player in the global semiconductor industry.

The EU Commission had last week adopted the European Chips Act that bundled together about €43 billion ($49 billion) in public and private funding for the sector, with the avowed mission of doubling the EU’s share of global chip production from 9 percent to 20 percent by 2030.

The European Union had tried for years to be more involved in the development and fabrication of semiconductor chips, having unveiled a similar funding package in 2013),  but the urgency of these noble plans has been brought to the fore with the global supply chain crisis triggered by the COVID-19 pandemic.

Ursula von der Leyen, European Union Commission President at the announcement of the Chips Act said:

“You all know that the global shortage of chips has really slowed down our recovery. We have seen that whole production lines came to a standstill, for example with cars. While the demand was increasing, we could not deliver as needed because of the lack of chips. So this European Chips Act comes absolutely at the right time.”

Aside the EU, other countries around the world have been outlining investment plans for the semiconductor industry, as the United States last  week approving a $52 billion Federal funding for the country’s chip market , with $39 billion of this earmarked for the development of new fabrication plants or fabs.

The European Union in apposition to the U.S appears to have weaker funding, and even though the top-line figures are similar, the €43 billion budget of the EU included €30 billion in previously announced investments, with direct funding from the bloc constituting 

A difficulty the European Union may face will be having trouble attracting manufacturers, with the Taiwanese firm TSMC currently dominating the semiconductor industry, after it generated more than half of global revenue. But with the right legislation and the right politics being played, it will have more footholds with other manufacturers.