EU Chip Industry Faces Dual Risks from China and the U.S., Report Paints Bleak Outlook
Claire Weston
An EU-funded independent report published July 2 warns that Europe's chip industry is squeezed on both sides — by Chinese supply-chain controls and dependence on US technology — calling the outlook 'bleak' and signaling that Europe's semiconductor vulnerability has moved from industry concern to policy crisis.
What exactly is the China-side risk?
The report identifies two top threats: China's export controls on critical minerals and magnets, and the potential for conflict in the Taiwan Strait.
This means → a significant share of upstream raw materials for EU chips is in Beijing's hands; alternatives cannot be sourced quickly if supply is cut or conflict escalates.
In plain terms = China does not need to block chips directly — controlling the raw materials that go into making chips is enough to put Europe on the back foot.
The US is an ally — why is it also a risk?
The report flags the EU's heavy reliance on US technology, particularly chip-design software (EDA tools — the software used to draw chip circuit blueprints), as a separate layer of vulnerability.
It singles out ASML — Europe's most valuable company and the world's sole maker of the most advanced lithography machines — noting that Washington could unilaterally order it to stop exporting equipment to China.
A bill now under review in Congress would give Washington the power to impose export controls on allied nations' companies unilaterally. This means → Europe's most critical chip asset may not be fully under its own control.
What weaknesses exist inside the EU itself?
The report lists three structural problems: persistently high energy prices, a shortage of private capital, and shrinking downstream industries that consume chips.
In plain terms = making chips is expensive, investment is scarce, and the customers buying those chips are also declining — all three legs are buckling at once.
This reflects a reality that goes beyond geopolitics: the EU chip industry's own fundamentals are weakening.
How does the report's author weigh the China vs. US threat?
Co-author Joris Teer, a policy analyst at the EU Institute for Security Studies, told Reuters: "Although Beijing still appears the biggest threat, dependence on Washington has raised greater concern during Trump's second term."
This means → in the researchers' view, an ally's unpredictability may be harder to manage than an adversary's hostility — because hostility is an open card, while a policy U-turn from a partner is a hidden one.
What is the EU's plan?
The European Commission proposed the Chips Act 2.0 in June, featuring incentives to boost domestic chip demand and joining the US-led "Pax Silica" supply-chain cooperation initiative.
Teer argues Europe's "only viable path" is to double down on existing strengths like ASML, using them as leverage.
This means → Europe's strategy is not to catch up across the board but to play its few strong cards for maximum effect. Whether the Chips Act 2.0 advances through the legislative process will be the key test of whether that card can actually be played.
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