European Chips Squeezed Between Beijing and Washington

Introduction: a strategic sector on the edge of the abyss

A report that lands like a guillotine

A report published on July 2, 2026 by the European Union Institute for Security Studies and the French think tank Institut Montaigne paints a chilling picture: Europe's semiconductor industry faces a "bleak" future, caught between Chinese export controls and its technological dependence on the United States. The document, relayed by Reuters, draws on anonymous responses from 55 experts across government, industry, and academia.

The message pulls no punches: both the supply security and the competitiveness of the European sector are threatened over a five-year horizon, through 2031. For a continent aspiring to technological sovereignty, this diagnosis lands at a particularly poor time, as the global race for artificial intelligence and computing power intensifies by the month.

Why this investigation matters to the West

Semiconductors are not just another industrial product: they are the foundation of modern defense, of artificial intelligence, of telecommunications, and of the auto industry. A Europe unable to secure its own supply chain for advanced chips becomes structurally vulnerable to geopolitical pressure from Beijing and, more surprisingly according to this report, from Washington.

This investigation seeks to understand how a sector born of an ambition for digital sovereignty finds itself, four years after the launch of the first European Chips Act, barely able to meet its most modest targets, all while shouldering growing dependence on two rival powers.

The Chinese threat, at the heart of the concerns

Rare earths, Beijing's silent weapon

According to the report by Institut Montaigne and EUISS, the most severe threat identified by experts concerns Chinese export controls on critical raw materials, chemicals, and magnets essential to chip manufacturing. This risk was rated 7.96 out of 10 by respondents, the highest score in the entire survey, even ahead of military tensions in the South China Sea.

Manufacturing equipment and other semiconductor technologies score 7.47, while older-generation chips, still widely used in cars and consumer electronics, reach 7.15. China has repeatedly shown since 2025 its ability to use these levers as economic weapons against countries it deems hostile to its interests.

Taiwan, the nightmare scenario that never goes away

A conflict in the Taiwan Strait remains, according to the experts surveyed, the single most dangerous risk of all those assessed, with a score of 8.20 out of 10. This assessment confirms that the Chinese shadow over Taiwan, where the bulk of global production of the most advanced chips is concentrated via TSMC, continues to haunt European strategists as much as those in Washington.

A disruption of shipping routes or a cyberattack targeting the sector's critical infrastructure are also judged "highly threatening," with respective scores of 7.09 and 6.38. This pile-up of high-risk scenarios paints a picture where Europe appears structurally incapable of protecting itself alone against a crisis originating in Asia.

Dependence on Washington, an unexpected blind spot

The crushing weight of American technology

What makes this report particularly uncomfortable for European leaders is the space given to dependence on the United States. Europe remains structurally tied to American design software and to the risk that Washington could block exports to China from suppliers like ASML, the continent's most valuable Dutch company and a key supplier of the world's most advanced lithography machines.

According to Joris Teer, cited by Reuters, while Beijing remains seen as the most severe threat, dependence on Washington "appears to have become a far bigger concern" since the return of the Trump administration. This finding illustrates an unprecedented tension: even Europe's closest allies can become, through their own trade decisions, a source of strategic vulnerability.

An American law already worrying Brussels

The report also notes that a new American law could further restrict European exports, adding another layer of uncertainty for the continent's manufacturers. This situation illustrates the painful paradox of a Europe militarily allied with Washington while remaining, on the technological front, at the mercy of its unilateral decisions.

This crossed dependence shows that European technological sovereignty can only be built by simultaneously reducing risks coming from Beijing and from Washington, a balancing act that few European governments today seem capable of pulling off coherently.

Europe's internal structural weaknesses

Energy prices, a permanent ball and chain

Beyond external threats, the report identifies considerable internal weaknesses within the European ecosystem. High energy prices, the lack of private capital available to finance heavy industrial projects, and the decline of client industries that use chips have gradually eroded the sector's competitiveness on the continent.

These internal weaknesses are judged, according to the experts surveyed, to be the most severe threat to the future competitiveness of the European ecosystem, even more than direct outside competition. This means Europe cannot simply blame Beijing or Washington for its troubles: part of the problem is manufactured within its own borders.

Unfair competition that worsens the situation

Competition deemed unfair coming from countries outside the European Union, notably through massive subsidies granted by foreign governments to their own industrial champions, is expected to keep weighing on the competitiveness of the European sector over the next five years, with threat scores ranging from 6.02 to 6.16 depending on the category assessed.

This combination of external vulnerabilities and internal fragilities creates a formidable pincer effect: Europe must massively fund its industry while simultaneously managing energy costs and capital access far less favorable than those of its American or Asian competitors.

The disappointing record of the first European Chips Act

A 20% target now out of reach

Launched in 2023, the European Chips Act aimed to double the European Union's share of global semiconductor production to reach 20% by 2030. According to the European Court of Auditors, this target is now completely out of reach: Europe's market share is expected to reach only 11.7% by that deadline, barely two points above 2022 levels.

The program called for more than €43 billion in public investment, meant to be matched by an equivalent amount of private investment, for an expected total of around €86 billion. But a large share of that funding actually came from redeployed existing European programs rather than genuinely new funds, a budgetary sleight of hand openly criticized by several industry experts.

Intel's withdrawal, a symbol of strategic failure

Intel's withdrawal from its planned mega-factories in Germany last year remains the most striking symbol of this relative failure. This retreat, driven partly by financial considerations but also by insufficient commitments from European customers, illustrates the fundamental problem identified by Reuters Breakingviews analysts: Europe sought to attract factories without first building sufficient local demand for advanced chips.

Faced with this finding, the European Commission proposed in June 2026 a Chips Act 2.0, to be formally presented by technology commissioner Henna Virkkunen, with a different approach: stimulating local demand rather than simply subsidizing industrial supply.

The EU's new €50 billion investment announcement

A raised ambition in the face of urgency

Faced with these damning findings, several voices within European industry and governments are calling for a considerably stronger financial push. A coalition led by the Netherlands is pushing for a revision of the Chips Act into a 2.0 version aimed at quadrupling existing investment, while the industry group SEMI is calling for the European Union to dedicate a budget capable of catalyzing more than €260 billion in combined public and private investment by 2028.

This new wave of investment, put at around €50 billion in several recent projections, explicitly aims to strengthen European manufacturing capacity and reduce the continent's dependence on Asian and American suppliers by 2028, a deadline notably closer than the originally set 2030 horizon.

The difficult funding equation

The problem, highlighted by several analysts, is that the European Union has so far struggled to turn its budget announcements into actually disbursed investment. Of the €43 billion initially promised, only a limited fraction has actually been committed, with about 80% of public funding actually coming from member states rather than the community budget itself.

This budgetary fragmentation, denounced for years by industry players, illustrates why the new promises of €50 billion generate as much skepticism as hope: without a centralized, binding funding mechanism, nothing guarantees this new ambition will escape the fate of the last one.

Concrete consequences for consumers and industry

A memory shortage already hitting prices

The effects of this structural fragility are already being felt in the daily lives of European consumers. The head of British retailer Currys, Alex Baldock, warned in early July that unavoidable price increases for smartphones, laptops, and other electronic devices will hit consumers later this year, due to a global memory chip shortage worsened by the voracious appetite of data centers dedicated to artificial intelligence.

According to Baldock, AI and data centers are "devouring" the world's available silicon supply, leaving markedly less capacity for consumer devices, which will cause both availability problems and price inflation. This shortage concretely illustrates why the semiconductor question extends far beyond circles of geopolitical experts.

Automakers and industry, the first collateral victims

Beyond consumer electronics, entire sectors such as automotive, aerospace, industrial robotics, and medical technology depend on stable access to semiconductors. A new supply crisis, similar to the one experienced during the pandemic, would have economic repercussions far broader than a simple delayed smartphone delivery.

It is precisely this systemic interdependence that turns a technical report on chips into a matter of national economic security for every European country, and that justifies the urgency felt by the authors of the EUISS and Institut Montaigne report.

The gap with South Korea and Taiwan keeps widening

Asian competitors accelerating relentlessly

While Europe debates its Chips Act 2.0, South Korea and Taiwan continue to invest massively to consolidate their lead in manufacturing advanced chips. According to data cited by The Star, investors regularly reassess their bets on artificial intelligence by watching precisely the stock performance of these Asian semiconductor giants, an indicator of markets' persistent confidence in the Asian ecosystem rather than the European one.

This dynamic deepens an already worrying imbalance: as TSMC and South Korean manufacturers strengthen their dominance over the most advanced nodes, the European Union remains confined to older technological segments, limiting its ability to carry weight in trade negotiations with Beijing and Washington.

The risk of a permanent falling behind

Some industry analysts warn that if Europe does not close this technological gap by the end of the decade, it risks a structural fall-behind that would be difficult to reverse, permanently relegating it to the rank of a mere consumer of technologies designed and manufactured elsewhere, rather than a sovereign player in this strategic industry.

This scenario, far from being a distant hypothesis, is already shaping discussions within the European Commission about the urgency of speeding up investment decisions rather than multiplying reports and announcements with no concrete follow-through.

Conclusion: Europe facing a choice that can no longer wait

A strategic window closing

This report by EUISS and Institut Montaigne confirms what many European industrialists already feared: without fast, coordinated, and adequately funded action, the European Union risks remaining structurally dependent on both China and the United States for a sector as vital as semiconductors. The window to correct course before 2031 is gradually closing.

Chips Act 2.0, with its renewed approach centered on local demand rather than simply attracting new factories, offers Europe a second chance. But that chance will only be worth something if the announced €50 billion finally translates into real disbursements, rather than new promises recycled from one European summit to the next.

A test for the West's industrial credibility

Beyond the numbers and threat scores, this investigation raises a simple question for the entire Western world: can we still claim to defend our values and our collective security if we remain dependent, down to our most critical technological foundations, on rival powers or unpredictable partners? The answer to this question will largely determine Europe's place in the global technological order over the next five years.

This is a file I will keep following closely, because it touches directly on the West's ability to remain master of its own industrial and military destiny against rivals who have no intention of slowing their ambitions.

By Maxime Marquette, columnist

Columnist's transparency note

On the sources and limits of this investigation

This investigation relies on the joint report by the European Union Institute for Security Studies and Institut Montaigne, published on July 2, 2026 and relayed by Reuters, as well as public data from the European Court of Auditors and the European Commission. Figures related to future investments, notably the €50 billion mentioned for 2028, come from projections and announcements that remain to be confirmed by formal budget decisions.

What I cannot state with certainty

I cannot guarantee that the announced investment amounts will be fully disbursed, nor can I precisely predict how Chinese export controls or the American trade laws mentioned in the report will evolve. My role as a columnist is to analyze the available facts honestly, not to invent certainties that the experts themselves do not have.

Sources

Primary sources

Reuters — Chinese and US risks mean EU chip sector faces a bleak future, report says, July 2, 2026

Institut Montaigne — The EU Semiconductor Geopolitical Risk Survey: Outlook for 2026-2031, July 2026

European Court of Auditors — Special report 12/2025: The EU's strategy for microchips

Secondary sources

Reuters Breakingviews — Europe's chip programme could do with a reset, June 1, 2026

Tom's Hardware — EU pushes for Chips Act 2.0 investment, 2025

European Commission — European Chips Act, updated June 2026