When the European Chips Act was first unveiled in 2023, European Commission President Ursula von der Leyen confidently declared it would make Europe a leader in the global semiconductor market. The ambitious plan aimed to mobilize an astonishing €43 billion in public and private investment, intending to propel the continent to the forefront of technology by significantly boosting its indigenous semiconductor industry and securing crucial supply chains.
However, the grand vision has encountered significant turbulence. Just last week, a critical blow was dealt as a major global chipmaker, Intel, announced it was abandoning its planned investments in Germany and Poland. These substantial projects, including a €30 billion complex in Magdeburg and a €5 billion plant in Wroclaw, were cornerstone initiatives of the entire strategy, promised massive government subsidies and slated to go live by 2027.
Instead of building on European soil, Intel is now shifting its production capabilities to Vietnam and Costa Rica. Concurrently, other tech giants are also looking elsewhere; Apple, for instance, is reportedly heading to South Korea to secure the chips necessary for its operations, and while it has a US factory underway, there remains no sign of such a development within Europe. Furthermore, the anticipated surge of new start-ups in the European semiconductor industry has simply not materialized.
In essence, the EU Chips Act has proven to be yet another vivid illustration of the inherent challenges associated with state economic planning. One major flaw was its disproportionate focus on raw production volume rather than high-value, quality output. The most generous government subsidies were earmarked for facilities designed to churn out basic chips for everyday devices, a brutally competitive sector where Europe’s high labor costs inherently put it at a disadvantage in chip manufacturing.
Moreover, even when new factories managed to get initial approval, they quickly became ensnared in pervasive regulatory red tape, rendering it nearly impossible to bring them online within projected timelines and budgets. Offering substantial government subsidies to chipmakers becomes futile if existing legislation continues to undermine their operational competitiveness. Adding to the complexity, a one-sided trade agreement is anticipated to allow US chips unrestricted access to the European market, while European-made processors could face a significant 15% import tariff in the US.
Finally, as is often the case with centralized economic planning, bureaucrats dramatically misjudged the global market cycle. By 2023, it was evident that an excessive amount of capital was being poured into chip manufacturing worldwide. The Biden administration had already pledged $230 billion for its own Chips Act, and established players like Japan, Taiwan, and South Korea, already possessing vast expertise, were simultaneously escalating their investments. Even as the European investments were being announced, major players like Samsung were already issuing warnings about declining chip sales and their impact on profits, signaling an impending global glut that went unnoticed by program administrators.
In a surprising move, the EU is now reportedly planning a second iteration of the Chips Act, despite the first having demonstrably failed to achieve its objectives. Instead of reaching a targeted 20% of the global market by the 2030s, projections now indicate Europe’s share is more likely to dwindle to 5%, or even less, highlighting the profound miscalculations in its industrial policy.
This entire saga encapsulates a broader, critical lesson: governments globally have become increasingly preoccupied with formulating elaborate industrial policy strategies and attempting to ‘pick winners’ within complex markets. However, the outcome consistently remains the same. Despite massive investment and grand pronouncements, such centralized economic planning frequently struggles to adapt to dynamic market realities and often falls short of its ambitious goals, leaving the European economy facing significant challenges in the competitive semiconductor industry.
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