The Chips War

Semiconductor wars: Taiwan Semiconductor Manufacturing Co., or TSMC, will spend roughly €3.5 billion, or $3.8 billion, to build a chipmaking factory in Germany, its first in Europe. Germany will contribute up to €5 billion to the project as part of Berlin’s wider goal of boosting its domestic semiconductor industry.

Our Take: Semiconductors, the tiny chips that power everything from smartphones to fighter jets and which will be vital to AI and the green transition, have become perhaps the most crucial part of the so-called Tech War between the West and China. The Biden administration has been particularly assertive in attempting to limit China’s access to the most advanced chips, while boosting the United States’ own domestic semiconductor industry via last year’s CHIPS Act.

In response, the EU earlier this year approved the European Chips Act, a €43 billion subsidy plan with the aim of doubling the bloc’s chipmaking capacity by 2030. The factory deal between Germany and TSMC marks the first major agreement since that plan was approved.

The fact that Berlin is prepared to contribute more to building the factory than TSMC itself highlights two significant trends:

    TSMC, and by extension Taiwan, has become central to Western plans to strengthen strategic supply chains in the chipmaking industry.
    The contest for chipmaking dominance—like that for the technologies powering the green transition—has become increasingly competitive, not only between the West and China, but also between Europe and the U.S.—and even within the EU itself.