Experts warn:

US chip war with China could harm Europeans

This is what it looks like in the Infineon chip factory in Villach.

(Bild: APA/INFINEON AUSTRIA)

Europe's chip industry threatens to become collateral damage in the technology war between Washington and Beijing: According to experts, the US restrictions on technology exports to China pose risks for the European semiconductor industry.

Because companies from the People's Republic can no longer obtain machines for the production of state-of-the-art processors, they are increasingly investing in the production of technologically older, mature chips that are used in cars and robots, for example. This could enable them to challenge European companies such as Infineon or STMicro for their previous domain.

"Chinese companies don't have to make profits," explains analyst Antonia Hmaidi from the Mercator Institute for China Studies (Merics). "Even if it doesn't work in the long term without state aid, it can be worthwhile for the economy as a whole if it makes other sectors more efficient." According to Commerzbank economist Vincent Stamer, the People's Republic subsidizes its chip industry nine times more than industrialized countries. "This includes subsidized loans or research funding. This is reflected in low world market prices."

Analyst: oversupply of chips for cars and industrial robots
Wolfgang Weber, head of the German Electrical and Electronic Manufacturers' Association (ZVEI), is observing growing Chinese production of so-called catalog goods, versatile computer chips. "We recognize the local government's ambition to increase the level of self-sufficiency." Weber does not see an immediate threat from cheap Chinese competition. "However, this does not mean that supply will exceed demand in certain areas and at certain times. The microelectronics industry will have to adjust to this."

Analyst Janardan Menon from the investment bank Jefferies warns that there is already a fairly large oversupply of chips for cars and industrial robots. An easing of the situation will depend on the speed at which Chinese producers expand their capacities.

China's pricing policy under the microscope
In the solar industry, we can already see what the future could look like: Chinese suppliers have built up large overcapacities in recent years and are pushing their modules onto the global market at knockdown prices. The EU has therefore initiated anti-dumping proceedings. In order to prevent a similar development in the chip industry, the EU Commission has been collecting relevant information since July. "It is right that the EU Commission is addressing the issue at an early stage and questioning those affected," emphasizes ZVEI boss Weber. Because then it would be possible to take countermeasures with targeted support for European companies, for example.

The European semiconductor industry association Esia is already calling for a Chips Act 2.0 to supplement a law passed last year. With the Chips Act, the EU aims to double the market share of semiconductors manufactured in Europe to 20 percent by 2030. Merics analyst Hmaidi also advocates additional state aid. However, the EU should coordinate with other Western countries to prevent a subsidy race. Taiwan, home to the world's largest chip manufacturer TSMC, has spoken out in favor of such an agreement.

Pros and cons of tariffs
Another option would be tariffs, such as those planned for Chinese electric cars, says Weber. "We are actually against tariffs. But Europe must be able to act and defend itself. It is therefore right to prepare - ideally as a deterrent so that the other side refrains from flooding the European market." Merics expert Hmaidi doubts the benefits of such tariffs in principle, as hardly any Chinese semiconductors are imported directly. They would come into the country in Chinese devices. "Instead, I can imagine that certain regulations on supply chain or cyber security would be introduced." However, the EU can only make recommendations here, the implementation of which is the responsibility of the member states.

The impact of such measures on the European chip industry would depend on which part of the value chain the companies are active in. For suppliers such as ASML, the construction of semiconductor factories in China is an important source of revenue because they supply the necessary machines, explains Jefferies analyst Menon. The Dutch group does around a third of its business with the People's Republic.

For chip manufacturers such as Infineon, STMicro and NXP, the picture is mixed: on the one hand, they are feeling the competition from Chinese manufacturers, but on the other hand, they have so far been ahead in highly specialized chips because, unlike Chinese rivals, they offer design and production from a single source. "When it comes to safety-relevant components such as brakes, many customers remain loyal to Western suppliers such as Infineon or Texas Instruments because confidence in Chinese products is not yet as high," emphasizes expert Hmaidi.