Over the last few years, governments around the world have been scrambling to boost domestic semiconductor manufacturing. The reasons are many. Protecting supply chains, reducing reliance on Taiwan's TSMC, economic protectionism and national security are all valid reasons to boost domestic chip production. The EU is the latest body to take pass legislation. It's passed its own Chips Act, which allocates €43 billion ($48 billion) to support EU based semiconductor manufacturing.
The bill seeks to foster the development of a European industrial base by creating favorable conditions for investment, education, and research and development to support a healthy chip manufacturing industry over the long-term.
"With the Chips Act, Europe will be a frontrunner in the world semiconductors race. We can already see it in action: new production plants, new investments, new research projects. And in the long run, this will also contribute to the renaissance of our industry and the reduction of our foreign dependencies," Héctor Gómez Hernández, Spanish minister for industry, trade, and tourism, said of the development.
Intel has already taken steps to increase European chip manufacturing, signing a 30-billion euro deal with the German government to build facilities in Magdeburg, Saxony-Anhalt. It's also set to expand its presence in Kiryat Gat, Israel.
TSMC is also expanding in the USA, though its not going to plan due to a lack of skilled workers. That last point is a major roadblock to any chip manufacturing expansion plan. Bleeding edge facilites don't run themselves, and educating thousands of workers takes years and a lot of investment.
The EU bill follows in the footsteps of similar actions taken by many governments to shore up domestic chip production. The US Chips and Science Act is one example. Ever since the Covid-19 pandemic wreaked havoc on global semiconductor supply chains, governing bodies have been scrambling to prevent a repeat. But domestic chip supply isn't being sought solely for economic reasons. When you start throwing terms like "national security" into the mix, it's clear that governments will only increase actions to secure chip supplies.
A reliable domestic chip supply industry is seen as vital to the security of a country. Militaries need chips too. Things like missiles, drones, signal intelligence and communications all rely on advanced chipmaking tech, and countries obviously want to keep their most important tech secrets in-house.
Perhaps the best example of this relates to Russia. Restrictions on chip sales make up part of the sanctions against Russia in retaliation for its invasion of Ukraine. These restrictions help prevent it from replacing dwindling weapon stockpiles.
As demand for chips in the fields of AI, robotics, and automation skyrockets, countries simply do not want to share. The ongoing tit-fot-tat tech war between the USA and China is a case in point. The US government doesn't want companies like Nvidia selling its most advanced AI technologies to China.
The reliance on Taiwan's TSMC is a major factor too. Should China and Taiwan go to war, or a natural disaster hits the earthquake and typhoon prone island, global chip supplies would be decimated, leading to economic calamity. Throw the small matter of a global pandemic into the mix and the EU's thinking behind its Chips Act becomes clear.