EU chip sector faces ‘bleak future’ from US, China risks, report finds

Europe's semiconductor industry confronts a "bleak future" squeezed between Chinese export controls on critical materials and deep technological dependence on the United States, according to an EU-funded report published Thursday that lays bare the structural vulnerabilities threatening the bloc's chip ambitions.

Twin Threats From East and West

The independent report, produced by the European Union's Institute for Security Studies and French think-tank Institut Montaigne, found that Chinese restrictions on critical minerals and magnets, along with the risk of conflict in the Taiwan Strait, pose major threats to Europe's chip supply chains. On the other side, the EU's reliance on U.S. technology — including chip design software — and the possibility that Washington could block exports to China by ASML ↘ 1.59%, Europe's most valuable company, create additional exposure.globalbankingandfinance+2

The report, which drew on industry, political, and academic sources, also identified Europe's persistently high energy prices, a shortage of private capital, and the decline of industries that consume semiconductors as factors undermining competitiveness.marketscreener+1

Commission Responds With Chips Act 2.0

The European Commission has moved to address these weaknesses. In June, it proposed a Chips Act 2.0 — now awaiting debate by EU lawmakers — that includes incentives to boost demand for domestically manufactured chips and broader measures to reduce strategic dependencies. The revised legislation aims to shift Europe's approach from subsidizing individual fabrication plants toward building ecosystem-level competitiveness.digital-strategy.europa+2

Separately, the Commission signed the "Pax Silica" Declaration on June 23, joining a U.S.-led initiative of allied nations cooperating to secure semiconductor and AI supply chains. The declaration commits the EU to working with global partners on supply chain resilience at a time when semiconductors are increasingly treated as strategic assets.digital-strategy.europa+2

Structural Challenges Remain

Despite these policy responses, the scale of the challenge remains daunting. The original European Chips Act, which entered into force in September 2023, set a target of doubling the EU's global semiconductor market share to 20 percent by 2030. Industry groups have called for a centralized EU semiconductor budget of €20 billion and argued the revised act must go beyond symbolic capacity targets. Whether the new measures can overcome entrenched disadvantages in energy costs, capital availability, and end-user demand remains the central question facing European policymakers.digitaleurope+1