Economic Statecraft
Digital Chessboard: The Geopolitics of Semiconductors

The competition between technological platforms that are being formed at the poles of the modern world economy, which were previously identified by the experts of the Valdai Discussion Club, is growing: both in breadth (new states and TNCs are involved) and in depth (there is an improvement of state intervention at the levels of legislative and executive power). The acute shortage of semiconductors during the pandemic forced the authorities of the most economically developed countries to take steps in the “chip race”, aimed at maintaining existing niches in this market segment and expanding its strategic positions. A special place in this race belongs to the USA and the EU, which in late 2021 and early 2022 made significant efforts to dominate the digital chessboard. 

The key questions that are being addressed in the process of the chip manufacturing industry’s development on both sides of the Atlantic are as follows:
How should one understand “technological sovereignty” in the modern era, and what should its contribution be to national security and competitiveness?

How can one reduce the risk of stoppage in supply chains, and to what extent can we rely on partners from other sovereign states and private corporations to solve this problem?
What should be the optimal balance between government entities and private businesses in determining the vector of development of sectors of the economy, where the volume of transactions can be measured in trillions of dollars?

 Chips as the new oil

The popular saying “Chips are the new oil” adequately characterises the scope of the topic we are considering due to the importance and indispensability of semiconductors for modern economic development, as well as dependence on a limited number of industry players.

Semiconductors are the world's fourth most traded commodity after crude oil, petroleum products and automobiles. Until the current crisis, the industry has relied on deep geographic specialisation and a liberal trade regime. The production of modern microprocessors is becoming increasingly complex and costly: the construction of a single plant for the production of modern chips requires investments of up to 20 billion euros. Such expenses are difficult both for individual companies and for states.

Semiconductor production is divided into three main stages, and often companies and countries specialise in only one of them: 1) semiconductor design, 2) production (so-called “fabs”), 3) product assembly and testing. About 80% of the world's most technologically advanced semiconductor manufacturing is located in Taiwan and South Korea, which creates potential risks and vulnerabilities in the supply chain for the world due to the growing Sino-US conflict in the East Asia region.

Washington and Brussels consider this situation unacceptable. Indeed, the United States retains its leadership only in R&D activities and in the production of specialised equipment. The EU electronics industry leads only in the field of power electronics systems, sensors and equipment for the production of microcircuits, and processors for the automotive and mechanical engineering industries. While they can be called economic ‘Gullivers’, the US and EU remain technological Lilliputians in the chip market. In 2021 they persistently tried to change this situation.

US and European Union: Responding to the current chip shortage

The measures that are being implemented today by the state structures of the United States and the European Union are explained in Washington by the desire to achieve “self-sufficiency” and “national security”, and in Brussels by “strengthening strategic autonomy” and “ensuring technological sovereignty”.

The development of chip legislation in the US and EU in 2021 followed a similar pattern:

1) Initial assessment of semiconductor supply chains and the degree of dependence on external producers. As a result, the US and the EU concluded that urgent action is needed to reverse the decline in the semiconductor supply chain caused by significant subsidies offered by the governments of other countries (for example, South Korea and China) to their national manufacturers.

2) The creation of a legal and regulatory framework for the semiconductor supply chain and the entire industrial ecosystem. The US CHIPS Act (CHIPS - Creating Helpful Incentives to Produce Semiconductors for America Act) was approved as part of the National Defense Authorization Act for the Fiscal Year 2021 and includes $52 billion in federal investment for national research, design, and semiconductor manufacturing through the CHIPS for America Fund.

In the European Union, the European Chips Act, published by the European Commission on February 8, 2022, provides 43 billion euros for investment in the industry.

3) Establishment of funds to support the industry, promoting the practice of public-private partnerships, as well as coordinating actions with partners from abroad.

In the USA, in addition to the CHIPS for America Fund, the Defense Fund of America and the Fund for International Technological Security and Innovation are being established.

 Additional funding is also planned in 2022-2026 for the National Science Foundation ($81 billion) and the Department of Energy ($16.9 billion). The EU, in turn, is establishing a Chips Fund (2 billion euros in the first stage) in order to fill the existing investment gap and coordinate national programmes to subsidise the production of chips.

On both sides of the Atlantic, much attention is paid to the cooperation of the private sector with government agencies and academia. To this end, the activities of the recently established  European Alliance on Processors and Semiconductor Technologies and the Key Digital Technologies Joint Undertaking are being scaled up. In the United States, the National Semiconductor Economic Roadmap was launched in 2021, which includes private companies, universities and industry associations.

It is important to emphasise that “technological sovereignty” in the field of chip production in the EU and the USA today is understood not as complete autonomy of the parties, including in relation to each other, but a rather broad transnational cooperation. In view of the enormous costs and the need for highly specialised skills, technological sovereignty is planned to be ensured through cooperation between governments and private companies in the US, the EU, as well as individual Asian states in R&D, semiconductor production and export control. An example of such a partnership is the US-EU Trade and Technology Council, which was established in June 2021. 


The new model of technological development in the US and the EU is a modern version of the catch-up policy developed in the first half of the 19th century in the US (Alexander Hamilton) and Europe (Friedrich List). Successful measures for its implementation allowed the United States to become the largest economy of the world by the 1870s and maintain this leadership for a century and a half. Today, the efforts of Washington and the European capitals to keep up with Taiwan, South Korea, and the PRC rely on continued advances in technology, science, and finance. However, the modern version of catch-up development, which we call “semiconductor geopolitics”, requires close interaction between the state and business, the active intervention of government in the investment process and the implementation of protectionist measures, despite their use by Western countries in the period after World War II being more the exception than the rule.

The decision of the US and the EU to strengthen the semiconductor industry, both independently and in coordination with each other, reflects the peculiarities of world industry at the present stage. Whether the current contacts of the parties can lead to the formation of a sustainable technological alliance between the US and the EU is still difficult to predict. But the measures mentioned above can be seen as steps in this direction. Washington seems to decide, that if the competition of technological platforms cannot be cancelled, then it should be the leader in that part of the deglobalising market, where the political and economic dominance of the United States is undeniable, and where the allies represented by the EU countries are ready to integrate into the new architecture of the high-tech industry, playing the role of "number two".
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.