To move away from Asian dependence, the EU has announced a €43 billion plan to boost EU-made semiconductors. Why are countries around the world turning their backs on Asia, what will the plan involve, and how could it change the engineering environment?

Why are countries looking away from Asia for semiconductors?

For years, China has been the centre of manufacturing for the entire world market. The low labour costs combined with manufacturing incentives have allowed western nations to develop technology at an alarming rate. Computers that used to take up whole rooms now fit on a single tiny silicon die while everyday assistants may be replaced with AI avatars.

While China has been responsible for most manufacturing needs, it has always been behind other countries in the area of semiconductor R&D. High-tech products are manufactured in China, but the silicon needed to drive those products come from various countries around the world, including Taiwan, South Korea, and the United States.

But the growing capabilities of China now sees the country developing semiconductors that are not far behind what the west is capable of. China’s reputation of industrial espionage, interference, cyberattacks, and potential cases of human rights violations has the world questioning whether China is the answer for future manufacturing.

This problem with China, and Asia in general, is amplified when considering that TSMC has almost half of all world semiconductor revenue. The recent tension between China and Taiwan could see the majority of semiconductor supplies disrupted if China invades Taiwan. To make matters worse, the recent COVID-19 pandemic perfectly demonstrates how dependent the world is on semiconductors, and China disrupting Taiwan’s capabilities would be devastating to the world economy.

But the issues don’t end there; Chinese made hardware used in the west could provide the Chinese government and, by extension, the military, the ability to spy, disrupt, and disable western technology. It is well known that most companies in China require a member of the communist party to monitor the company’s activities. Thus, it would not be a stretch for Chinese agents to infiltrate hardware in development and add backdoor systems.

Thus, the world in its entirety has come to the conclusion that relying on Asia for semiconductors poses severe risks that need to be rectified with urgency.

EU announces €43bn budget for EU-made semiconductors

Like the CHIPS act in the US, the EU is looking to remove its dependency on Asia for semiconductors, and after months of planning and talks, it has finally come up with €43 billion. The new act, called “The European Chips Act”, will set up measures to prevent future semiconductor shortages from disrupting the global market while simultaneously looking to remove dependency on Asian-sourced semiconductors.

According to reports, €11 billion will fund research techniques and provide advancements in semiconductor manufacturing. The remaining funding, which comes from previous investments, will be funded by each member state. However, it is not entirely clear how this money will be used. One use of the funds could be to help reduce taxes faced by semiconductor manufacturers, while another could be to provide land and remove obstacles faced when setting up a new foundry.

The end goal of this act is to also push the EU’s global market share of semiconductors from its current position of 9% to 20% by the end of 2030. However, there are doubts that this will be achievable considering that the European Chips Act could potentially be anti-competitive and that the EU is known for taking years to come to decisions.

How will such acts change the engineering landscape?

The formation of such acts will unlikely see new companies forming as getting into semiconductor manufacturing is almost impossible. Anyone can set up a company to design semiconductor devices, but manufacturing them requires years of experience, billions in funding, the right equipment, and state-of-the-art facilities.

Thus, the budget for this act will most likely be pointed towards semiconductor manufacturers already operating in Europe, such as NXP, Bosch, Infineon, and STMicroelectronics. However, it could easily incentivise companies such as TSMC to move sites to Europe. It’s worth noting that Taiwan is not regarded as an Asian business but rather a high-risk manufacturing site because of its proximity to China. China has expressed a desire to invade and this makes Taiwan a high-risk manufacturing site. 

Of course, no amount of funding for EU companies will make a difference if their prices struggle to compete with those sourced from Asia. The reduction of sales tax on semiconductor products combined with lower corporation tax could help give semiconductor companies in Europe an advantage while imposing import taxes on Asian semiconductors would reduce the number of imported parts.

Will future engineers see Asia semiconductors as a relic of the past, or will they continue to be used? What if there is a future revolution in China that replaces the totalitarian regime with democratic leadership, and the security threats from China disappear?