This paper evaluates the European Chips Act as a response to the European Union’s reliance on non-EU semiconductor producers and suppliers to achieve strategic autonomy. To examine the motivations for the European Chips Act, the paper applies the concept of market failure to assess whether such a major market intervention is economically justified. The analysis reviews the Act’s structure and objectives and compares them with those of the United States CHIPS and Science Act. Drawing on policy reports, the paper finds that while the Act establishes a foundation for strategic autonomy, it lacks transparency, measurable outcomes, and effective coordination. The paper concludes that the Act is a necessary first step and improves prospects of microchip production in the EU, but is insufficient on its own to secure the EU’s position in global microchip production.
Table of Contents
1 Introduction
2 Methodology and reviewed literature
2.1 Methodology
2.2 Reviewed literature
3 Semiconductors and global interdependencies
3.1 The Semiconductor Industry and Global Value Chain
3.1.1 Europe’s Position in the Semiconductor Value Chain
3.2 European Chip Supply as a Market Failure
4 The European Chips Act
4.1 Structure of the ECA
4.2 Comparing the U.S. and EU Approaches to Semiconductor Policy: Framing and Funding Models
5 Prospects of Microchip Production in the EU
5.1 Evaluating the ECA’s eectiveness
5.1.1 Solid Investigation and Analysis as Basis for Policy Response
5.1.2 Collaboration and Alignment
5.1.3 Involvement of the Public and Transparency
5.1.4 Flexibility and Adaptability
5.2 Strategic Autonomy or Strategic Illusion? The ECA as a Foundation, not a Final Solution
6 Conclusion and Outlook
Research Objectives and Key Themes
This paper aims to critically evaluate the European Chips Act (ECA) as an instrument to address the European Union's semiconductor supply dependencies, assessing whether such significant market intervention is economically justified and capable of securing strategic autonomy.
- Analysis of the global semiconductor value chain and Europe’s position within it.
- Evaluation of semiconductor supply shortages as a form of market failure.
- Examination of the ECA's structure, objectives, and funding mechanisms.
- Comparative study of the European and United States semiconductor policy approaches.
- Assessment of the ECA's effectiveness in fostering long-term industrial resilience.
Excerpt from the Book
3.2 European Chip Supply as a Market Failure
An ideal market is driven by voluntary trade, with each party involved expecting benefits. Consumers enter the trade when the perceived value of a good matches or surpasses the price, while producers only participate if they feel fairly compensated for the trade. Well-performing markets allocate resources to their most efficient use, which achieves allocative efficiency. Once this level of efficiency is achieved, any shift in resource distribution would be at the cost of at least one party. This equilibrium is referred to as Pareto Efficiency. However, if key factors such as competition or equal access to information are weakened, markets become less efficient and failure may result (NSW Department of Industry, 2017, p. 4ff.).
In fact, there are several possible causes of market failures. These include externalities, public goods, asymmetric information, and market concentration (NSW Department of Industry, 2017, p. 6). Nevertheless, this paper will focus specifically on the latter, as in the case of Europe’s semiconductor gap, concentrated market power is the primary reason for market failure. Global semiconductor production is dominated by a small number of companies, which include NVIDIA, Samsung, and TSMC. This high concentration suggests a market failure rooted in the oligopolistic nature of the global semiconductor industry. The companies involved control a major part of the value chain and can influence supply, pricing, and market access. Thereby, they can create high barriers to enter the market (NSW Department of Industry, 2017, p. 2). Consequently, competitive dynamics are hampered, and new European actors are unable to participate successfully.
Accordingly, the EU has become reliant on dominant non-EU actors, which makes its supply chains vulnerable to external shocks and supply disruptions. The consequences of this dependence became evident during the COVID-19 pandemic. The crisis led to widespread semiconductor shortages, which caused production delays and resulted in a €100 billion loss for the European automotive industry (Duthoit and Lemerle, 2022, p. 2). This situation raised questions about whether and how such market distortions can be corrected by market forces alone.
Summary of Chapters
1 Introduction: This chapter introduces the essential role of semiconductors in the modern economy and outlines the EU's response to supply dependencies through the European Chips Act.
2 Methodology and reviewed literature: The chapter details the research foundation based on policy literature and industry reports, noting the challenges posed by the limited scholarly analysis on this recent topic.
3 Semiconductors and global interdependencies: This section maps the global semiconductor value chain and defines the EU's reliance on external suppliers as a significant market failure requiring intervention.
4 The European Chips Act: The chapter examines the three-pillar structure of the ECA and provides a comparative analysis of the EU approach against the U.S. CHIPS and Science Act.
5 Prospects of Microchip Production in the EU: This central chapter evaluates the effectiveness of the ECA against established criteria for successful market intervention, highlighting gaps in implementation and transparency.
6 Conclusion and Outlook: The paper concludes that while the ECA is an essential first step and a necessary corrective measure, it remains an insufficient solution for achieving full strategic autonomy without follow-up policies.
Keywords
European Chips Act, market failure, market intervention, semiconductor industry, strategic autonomy, microchip production, global value chain, supply chain resilience, industrial policy, European Union, semiconductor supply, technological sovereignty, economic competitiveness, public-private investment, first-of-a-kind facilities.
Frequently Asked Questions
What is the core focus of this research paper?
The paper evaluates the European Chips Act (ECA) as a policy response to the European Union's dependency on non-EU semiconductor producers, assessing its economic justification and effectiveness.
What are the primary themes discussed in the work?
Key themes include the global semiconductor value chain, the concept of market failure in the chip industry, the comparison between U.S. and EU industrial policies, and the challenges of achieving strategic autonomy.
What is the main research objective?
The objective is to critically assess whether the ECA can meaningfully improve Europe’s position in the global semiconductor market and if the level of market intervention is economically justified.
Which scientific methodology does the paper employ?
The study uses a qualitative analysis based on a combination of primary sources, such as official EU legislative documents, and secondary policy literature, including industry reports and academic commentary.
What topics are covered in the main body of the paper?
The main body explores the industrial landscape, the legal structure of the ECA, its funding pillars, a comparison with the U.S. approach, and an evaluation of its effectiveness regarding coordination, transparency, and adaptability.
How would you characterize the keywords of this paper?
The keywords highlight the intersection of industrial policy and economic theory, focusing specifically on strategic autonomy, semiconductor supply chains, and market-based interventions.
Does the paper consider the role of the COVID-19 pandemic?
Yes, the paper identifies the pandemic as the catalyst that exposed critical vulnerabilities in the European economy, prompting the urgency behind the issuance of the European Chips Act.
Why is the "first-of-a-kind" requirement significant for the ECA?
This requirement ensures that public support is directed toward technological or manufacturing innovations within the EU, serving as a safeguard to qualify for state aid under competition laws.
Does the author believe the ECA will achieve its 20% market share target?
The author expresses skepticism, suggesting that while the Act provides a necessary foundation, current calculations indicate the goal is unlikely to be met by 2030 without further, more extensive measures.
- Citar trabajo
- Philipp Orzessek (Autor), 2025, The Chips Act. Prospects of Microchip Production in the EU, Múnich, GRIN Verlag, https://www.grin.com/document/1672912
