Chinese and US risks mean EU chip sector faces a 'bleak future,' report says

• Chinese export controls on critical minerals and magnets, plus risks from potential conflict in the Taiwan Strait, pose major supply chain threats to EU chipmakers
• A proposed US law would give Washington unilateral power to impose export controls on allied nations, with dependence on the US becoming a greater concern under the second Trump administration
• Europe's structural weaknesses include continuing high energy prices, lack of private capital, and declining chip-using industries that undermine the sector's competitiveness

Summary: EU Chip Sector Faces "Bleak Future" Amid US-China Tensions

An EU-funded report released July 2 warns that Europe's semiconductor industry confronts severe challenges due to Chinese export controls, US technology dependence, and structural weaknesses.

Key Threats Identified:

The report by the EU's Institute for Security Studies and Institut Montaigne highlights Chinese export controls on critical minerals and magnets as major supply threats, alongside risks from potential conflict in the Taiwan Strait. Europe's heavy reliance on US technology—including chip design software—creates additional vulnerability.

US Policy Concerns:

A proposed US law under Congressional debate would grant Washington unilateral power to impose export controls on allied nations and their companies. This particularly threatens ASML, Europe's most valuable company and a leading chipmaking equipment supplier, whose exports to China could be blocked. Policy analyst Joris Teer noted that "dependence on Washington seems to have become of much greater concern under the second Trump administration."

Competitive Disadvantages:

The report identifies several factors undermining European competitiveness: high energy prices, scarce private capital, and declining chip-consuming industries.

Policy Response:

The European Commission proposed a Chips Act 2.0 in June, currently under legislative discussion, which includes measures for domestically manufactured chips. Europe has also joined Washington's "Chip 4" initiative to secure supply chains through allied cooperation.

Recommendations:

Teer suggests Europe's "only viable path" involves building on existing strengths, particularly ASML's chipmaking equipment expertise, to improve bargaining leverage while cooperating with allies to counter China.

The report drew on industry, political, and academic sources to assess the sector's outlook.