Tiphaine Court is a third-year International Relations student at KCL. She loves the multidimensional aspect of her studies, and she has a particular interest in military strategy and the geopolitics of East Asia. She is the Social Media Officer of IR Today, and as such she is looking forward to shedding light on the world’s most thrilling affairs.
In the context of heightened trade tensions between the EU and China, the critical issue of semiconductor supply has undoubtedly been raised during the 24th bilateral Summit that took place in Beijing on December 7, 2023. With China leading the global expansion of the semiconductor industry, the EU must now, more than ever, demonstrate ambition and break free from technological dependence that jeopardises its economic security.
Charles Michel, Xi Jinping and Ursula von der Leyen at the 24th EU and China Summit in Beijing on Dec. 7, 2023. (Source: EEAS)
CHINA’S OMNIPRESENCE IN THE REALM OF SEMICONDUCTORS:
Cars, laptops, smartphones… There is no digital without semiconductors. With the rise of artificial intelligence and 5G networks, the demand for these chips is set to increase significantly. Therefore, production of semiconductors has never been more strategically crucial for the European Union, urging its member states to rethink their geo-economic interests for a more resilient Union in the face of Chinese power. According to data from SEMI, the leading microelectronics industry association, the production of ‘wafers’, key components that form the basis of all semiconductor technologies, is expected to increase by 6.4% in 2024. Over 40 new factories are planned to emerge globally, with the majority of them implemented in China, allowing the country’s production of wafers to rise by 13%. Boosted by government funding and other incentives, China continues to assert its sovereignty in a particularly competitive sector.
Simultaneously, Taiwan, which produces 90% of the most advanced chips, is anticipated to maintain its position as the second-largest region in semiconductor capacity. Yet, the election of the new Democratic president, Lai Ching-te, increases the risks of escalation across the Taiwan Strait. Xi Jinping’s determination to reunite with Taiwan raises the possibility of a gradual economic embargo. Potential restrictions on exports of Taiwanese semiconductors could result in unprecedented supply shocks that would directly paralyze the European industry. Looking back, Europe has traditionally displayed a high degree of naivety towards China, allowing it to gain an advantage by exploiting international research cooperation while also maintaining a lack of transparency. Subsequently, Europe has significantly lost its market share in semiconductor manufacturing, going from 20% of global production capacity in 2000 to a mere 8% in 2021. The coronavirus pandemic and the following supply disruptions of these critical materials served as a brutal reminder of European vulnerabilities in these high-end technology areas. European leaders must not repeat the same mistake and wait for the next global geopolitical upheaval to reduce these excessive and costly dependencies.
A LONG-TERM THREAT:
Since 2019, the Von der Leyen Commission has regarded China as an economic competitor striving for technological prominence (European Commission, 2019). While the EU and China remain major economic partners with EUR 2.3 billion in goods trade per day, the current EU trade deficit of almost EUR 400 billion reveals the extent to which this relationship is critically and structurally imbalanced. Therefore, during the bilateral summit, the president of the European Commission reasserted the EU’s commitment to reduce critical dependencies and vulnerabilities, in an effort to de-risk.
However, the EU faces specific constraints, being more dependent on external demand and more integrated into the Chinese economy than the United States. Decoupling from China in the technological sector exposes European states to an increasing risk of coercive political and trade measures. Despite this, the Dutch company ASLM aligned with the US position by recently deciding to restrict the export of cutting-edge silicon chip-making tools to China on so-called ‘national and international security grounds’. For months, the US government has indeed been exerting strong pressure on the Netherlands to stop its exports altogether, while issuing a series of sanctions that take the lobal confrontation in this area to another level. For several analysts, these developments are symptomatic of a return to a ‘cold war logic’.Advancements in chip production are now scrutinized as an indicator of national power, much like nuclear tests or precision missiles were during the Cold War Arms Race.
Therefore, the semiconductor study case is a vivid symptom of the contemporary geopoliticisation of economic issues and an open-window to the global technological competition at stake.
WHICH WAY FORWARD?
Europe’s challenge lies in its ability to avoid Chinese restrictions while accessing and mastering these critical technologies to meet societal demands. This ambition has been evident since July 2023, when the European Commission approved the ‘European Chips Act’ program. This initiative aims to strengthen the European semiconductor ecosystem by diversifying supply and export markets, boosting research and investment in key technologies, and fostering closer partnerships with allies to reduce external dependencies. The ultimate objective is to double the current EU market share to reach at least 20% of the global market by 2030. The establishment of the first factory in Dresden by TSLC, the Taiwanese semiconductor manufacturer, represents as such a significant step forward in ensuring more European sovereignty in this sector, although it will only be operational by 2027 at the earliest.
Overall, a balance must be found between supply chain localisation and supply chain diversification. Not everything needs to be in Europe and places like Japan or Singapore may be trusted as safer alternatives. Beyond major European industrial projects, the degree of common ambition of EU member states must also be determined to cover all re-industrialization needs. EU measures and coordination may prove challenging, as member states guard decisions on export and investment controls as their own. Nonetheless, there is a growing recognition that the European bloc needs to combine its economic weight to compete with China. As such, it does not seem exaggerated to suggest that the EU is finally on the right track.
As emphasised by the President of the European Commission, ‘this world is increasingly contested geopolitically, and key technologies can be used aggressively’ (2023). In this context, semiconductors are at the core of the global technological competition. Too many geopolitical risks now weigh on this ultra-strategic industry which must remain at the heart of the European quest for strategic autonomy. For that purpose, the Union must implement a common policy intersecting research, trade and defence investments from member states. While this strategy may be challenging to articulate, it is vital for the EU to support this project, as these critical technologies serve as leverage for long-term economic security.
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