The European Chips Act: EU’s bid for greater digital autarky

The European Chips Act: EU’s bid for greater digital autarky

If we look at the big picture, it is impossible to understand the EU’s Chips Act without taking into account the international trade war of recent years. In this Horizons, we discuss how this initiative fits within the appeal of autarky in the digital economy and argue that re-shoring specific value chains will come at a cost.

European digital autarky

On February 8, the European Commission announced the European Chips Act, a set of measures to ensure the EU’s security of supply, resilience and leadership in semiconductor technologies. The goal is to mobilize over €43 billion of public and private investments in order to double the EU’s market share in semiconductors to 20% by 2030. To understand the EU’s plan, we must take into account the international trade war of recent years. Historically, during periods of such conflict, countries may turn to the idea of ‘autarky’: the desire to become self-sufficient in key sectors of their economy. Indeed, semiconductors are now part of a global geo-economic struggle, in which both the US and China are investing billions to become self-sufficient. In the past, autarky of food and energy have been relatively successful and we can already see the appeal of autarky more broadly across the digital economy (e.g. data localization, digital platforms, rare earth metals), a trend that will most likely hold momentum in the coming years.

Broaden Your Horizons

  • As audiences are migrating to streaming services, Disney’s ESPN is struggling to keep its subscribers engaged. This FT article discusses how Disney is trying to breathe new life into ESPN with sports betting.
  • According to ARK Invest’s Big Ideas 2022, AI innovation could increase nearly tenfold to more than $100 trillion in equity market capitalization.
  • U.S. President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets. People within the crypto sphere see this as a signal that Washington, D.C. is becoming more comfortable with cryptos.

A resilient economy will come at a cost

To become less dependent on other regions for its supply of energy and other critical resources, Europe aims to develop a resilient economy. The EU is planning to invest billions of euros in semiconductor production, Portugal intends to start mining lithium (used in electronics and pharmaceutical industries), and the Netherlands wants to invest massively in hydrogen production facilities. This newfound spirit of industrial politics will result in economic growth, develop local employment and should make the economy less vulnerable to global political unrest. These ambitions come at a cost, however, as it means swapping super-efficient global markets for more expensive local supply chains. Homemade computer chips and batteries will be more expensive than those from low-income countries. Besides, there may also be a social price to pay. In Portugal, residents have fiercely protested mining plans because of their enormous environmental impact. The same goes for objections to (large-scale) solar and wind projects that affect valuable ecosystems. If Europe chooses to re-shore specific value chains, countries must be willing to bear the negative consequences.

 

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