Actions the U.S. and EU Can Take Together to Strengthen Both Regions’ Semiconductor Supply Chain Resilience

by Jennifer Meng, Director of Global Policy

High-level government officials from Washington and Brussels are set to convene in Pittsburgh tomorrow (Sept. 29) for the inaugural meeting of the U.S.-EU Trade and Technology Council (TTC), which aims to expand and deepen trade and transatlantic investment ties.

The TTC features 10 working groups set to address supply chain security, export controls, global trade challenges, and other issues. It will provide a critical venue for the two governments to coordinate and promote sound semiconductor policies that strengthen our collective supply chain resiliency and spur industry growth and innovation.

Semiconductors are the foundation of everything digital in the world today – from transportation to AI to 5G to quantum computing and beyond. The COVID-19 pandemic and the ongoing global chip shortage have further highlighted how indispensable semiconductors are in today’s economy.

With deeply intertwined supply chains, the U.S. and EU semiconductor industries collaborate in a broad array of areas, including on relevant policy matters, research, and environmental initiatives. In fact, the U.S. and the EU combined represented 21% of the world’s semiconductor manufacturing capacity in 2020, and 43% of the world’s consumption of digital devices bristling with semiconductors in 2019. In 2020, the total two-way semiconductor trade between the U.S. and the EU totaled $4.8 billion. The U.S. and EU also share similar concerns about potential vulnerabilities and overdependence in the global semiconductor supply chain, particularly in parts of East Asia.

SIA has identified four specific areas the U.S. and EU can work together to strengthen the resilience of the semiconductor supply chain and promote innovation and trade.

1. The U.S. and EU should maintain close coordination and exchange of information on semiconductor policy and strategy. While geographic specialization has served the global semiconductor industry and its consumers well, it has also created potential vulnerabilities in the global value chain, as several factors have emerged that could put the successful continuation of this global model at risk.  In response, both governments have proposed semiconductor-related legislation – the U.S. Innovation and Competition Act (USICA) and the EU CHIPS Act – with plans to invest in high-risk gaps in the supply chains and to establish a more geographically diverse supplier base. As both governments introduce and implement these policies, they should jointly analyze the combined strengths and weaknesses in the semiconductor industry, ensure each region’s respective incentive programs are open to the most globally innovative companies, and promote information sharing and transparency regarding each region’s incentive programs.
2. The U.S. and EU should deepen collaboration on transatlantic research and development. Accelerating innovations in technologies is critical to strengthening supply chain resilience. The EU is home to many of the world’s leading global semiconductor research institutions, including IMEC in Belgium, CAE-LETI in France, and Fraunhofer-Gesellschaft in Germany. Additionally, the U.S. CHIPS Act also calls for the creation of a National Semiconductor Technology Center (NSTC) and an advanced packaging research institute. The TTC should provide a venue where existing and new collaborations can be strengthened and leveraged deliberately to address supply chain vulnerabilities.
3. The U.S. and EU should strengthen rules for state-owned enterprises (SOEs) and distortive industrial subsidies. SOE activities and industrial subsidies guided or aided by government influence, rather than by commercial considerations, can cause harmful market and investment. While SOEs are not major consumers of semiconductors in the U.S. and EU, they are important players in other non-market economies. As such, a key task of the TTC should be to reassert a leadership role in trade policy and governance globally, with a focus on addressing discriminatory and market-distorting practices that are inadequately addressed by existing trade rules.
4. The U.S. and EU should ensure a coordinated and targeted export control policy. Multilateral export controls are much more effective than unilateral controls, which could lead to a fragmentation of the ecosystem and global supply chains. As the U.S. and EU consider export control policy, both sides should ensure multilateral and transatlantic alignment on targeted semiconductor export control policies are tied to direct and tangible national security risks. Any export controls proposed should be evaluated for their impact on the U.S. and EU industrial and innovation base, which is important for both regions’ economic resiliency and national security.

Given the shared commitment to common transatlantic values between the two governments, together with the strong transatlantic ties between the U.S. and EU semiconductor industries, the U.S. and EU have a unique opportunity to advance broad-based growth and resilient supply chains in both economies. SIA looks forward to working with both the U.S. and EU governments to create and maintain an open semiconductor ecosystem that promotes industry growth and innovation.