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
- I TABLE OF CONTENTS
- II – ABBREVIATIONS
- III- FIGURES DIRECTORY
- 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
- 3.1 The Semiconductor Industry and Global Value Chain
- 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 effectiveness
- 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
- 5.1 Evaluating the ECA's effectiveness
- 6 Conclusion and Outlook
Objective & Thematic Focus
This paper evaluates the European Chips Act (ECA) as a strategic response to the European Union's dependence on non-EU semiconductor producers and suppliers. It primarily seeks to determine whether a major market intervention like the ECA is economically justified by applying the concept of market failure and to assess its effectiveness in achieving strategic autonomy.
- In-depth analysis of the European Chips Act (ECA) structure, objectives, and funding models.
- Comparison of the EU's semiconductor policy with the United States' CHIPS and Science Act.
- Evaluation of the global semiconductor value chain and Europe's position within it.
- Assessment of market failure in the semiconductor industry and the economic justification for intervention.
- Examination of the effectiveness of the ECA in fostering technological resilience and strategic autonomy.
- Discussion on the prospects and limitations of microchip production within the EU.
Excerpt from the Book
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.
However, for such state-guided intervention to be successful, several conditions must be met. Firstly, the policy response must be created based on in-depth evaluations and reliable data to address the reasons for the market failure. Equally important is that the approach remains adaptable to stay relevant and efficient over time. Successful outcomes also depend on joint efforts and aligned actions among the actors involved. Finally, interventions require accountability and clear communication. By integrating the public into governance structures and communicating the purpose of the intervention, greater legitimacy is fostered (Khan, 2017, p. 994f.). Later, these criteria will be used to assess the ECA's success as a market intervention based on how well it meets them.
Chapter Summaries
1 Introduction: Introduces the strategic importance of semiconductors, the EU's reliance on non-EU suppliers, and the rationale behind the European Chips Act (ECA), setting the stage for its evaluation.
2 Methodology and reviewed literature: Describes the research approach, relying on primary sources like the ECA and secondary policy literature, emphasizing the analytical framework of market failure and intervention.
3 Semiconductors and global interdependencies: Explores the global semiconductor value chain, its key drivers, and highlights the geographical concentration and interdependencies that create vulnerabilities for the EU.
3.1 The Semiconductor Industry and Global Value Chain: Details the semiconductor production cycle and identifies leading regions in design, fabrication, and assembly, illustrating Europe's position within this complex ecosystem.
3.1.1 Europe's Position in the Semiconductor Value Chain: Focuses on Europe's strengths in manufacturing equipment and R&D, while noting its declining share in global semiconductor production and resulting dependencies.
3.2 European Chip Supply as a Market Failure: Defines market failure in the context of Europe's semiconductor industry, arguing that concentrated market power justifies government intervention, and outlines criteria for successful policy responses.
4 The European Chips Act: Presents the legal basis, objectives, and three-pillar structure of the ECA, detailing its funding mechanisms and aims to strengthen the EU's semiconductor ecosystem and reduce external dependencies.
4.1 Structure of the ECA: Elucidates the three main pillars of the ECA – Chips for Europe Initiative, Security of Supply and Resilience, and Coordination Mechanism – outlining their respective goals and funding approaches.
4.2 Comparing the U.S. and EU Approaches to Semiconductor Policy: Framing and Funding Models: Compares the ECA with the US CHIPS Act, highlighting differences in their underlying framing (geopolitical vs. resilience) and their distinct funding and state aid models.
5 Prospects of Microchip Production in the EU: Critically evaluates the ECA's effectiveness by mapping it against established criteria for successful market interventions, questioning its potential to achieve strategic autonomy.
5.1 Evaluating the ECA's effectiveness: Assesses the ECA's implementation based on criteria such as the solidity of its foundational analysis, collaboration, transparency, and flexibility, finding shortcomings in each area.
5.2 Strategic Autonomy or Strategic Illusion? The ECA as a Foundation, not a Final Solution: Concludes that while the ECA is an important first step and has laid groundwork, it is unlikely to achieve its ambitious targets due to implementation gaps and insufficient funding, necessitating future policy development.
6 Conclusion and Outlook: Summarizes the ECA as a necessary market intervention that has initiated progress but requires subsequent, better-coordinated policies and increased funding to fully realize Europe's strategic autonomy in semiconductors.
Keywords
European Chips Act, market failure, market intervention, semiconductor industry, strategic autonomy, microchip production, global supply chain, technological resilience, EU policy, state aid, R&D, digital economy, supply disruptions, chip manufacturing, economic competitiveness
Frequently Asked Questions
What is the main topic of this paper?
This paper fundamentally evaluates the European Chips Act as the European Union's response to its reliance on non-EU semiconductor producers and suppliers, assessing its economic justification and effectiveness in achieving strategic autonomy.
What are the central thematic areas?
The central thematic areas include the global semiconductor value chain, the concept of market failure, the structure and objectives of the European Chips Act, a comparative analysis of EU and US semiconductor policies, and an evaluation of the ECA's effectiveness and its prospects for microchip production in the EU.
What is the primary objective or research question?
The primary objective is to critically evaluate whether the European Chips Act can secure Europe's technological resilience and strategic autonomy, and whether such a significant market intervention is economically justified.
Which scientific method is used?
The research is based on a combination of primary sources, notably the European Chips Act itself, and secondary policy literature, including official EU documents and scholarly papers, with market failure and intervention serving as the analytical framework.
What is covered in the main part?
The main part covers the global semiconductor industry and its interdependencies, the identification of Europe's chip supply as a market failure, a detailed analysis of the European Chips Act's structure and objectives, a comparison with the US CHIPS Act, and a critical evaluation of the ECA's effectiveness against criteria for successful market interventions.
Which keywords characterize the paper?
The paper is characterized by keywords such as European Chips Act, market failure, market intervention, semiconductor industry, strategic autonomy, microchip production, global supply chain, technological resilience, and EU policy.
How does the European Chips Act compare to the US CHIPS and Science Act?
The ECA and the US CHIPS Act both address supply chain fragilities but differ in their framing and funding models. The US Act is more directly linked to geopolitical rivalry and national security, offering substantial federal funding and tax incentives, while the ECA focuses on supply chain resilience and industrial competitiveness, relying more on national government and private contributions with limited direct EU funding.
What are the main criticisms regarding the implementation and effectiveness of the ECA?
Criticisms include its hasty development which omitted public and expert input, slow implementation of coordination mechanisms (e.g., Industrial Alliance, emergency toolbox), lack of transparency in funding distribution and Key Performance Indicators (KPIs) for most pillars, and the slow subsidy approval process, which collectively undermine its effectiveness and may lead to missing its 2030 market share target.
- 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
