Experts warn: – The US chip war with China could hurt the Europeans

Because companies from the People’s Republic no longer have access to machines to produce state-of-the-art processors, they are increasingly investing in the production of technologically older, more advanced chips used, for example, in cars and robots. This would allow them to challenge European companies such as Infineon or STMicro for their previous domain.

“Chinese companies do not need to make a profit,” explains analyst Antonia Hmaidi of the Mercator Institute for China Studies (Merics). “Even if it doesn’t work in the long run without government support, it could be worth it for the economy as a whole if it makes other industries more efficient.” According to Commerzbank economist Vincent Stamer, the People’s Republic subsidizes its chip industry nine times as much as industrialized countries. “This also applies to concessional loans or research financing. This is reflected in the low world market prices.”

Analyst: Oversupply of chips for cars and industrial robots
Wolfgang Weber, head of the Association of the German Electrical and Digital Industry (ZVEI), observes the growing Chinese production of so-called catalog goods, versatile computer chips. “We recognize the government’s ambition to increase the level of self-sufficiency.” Weber sees no immediate threat from cheap Chinese competition. “But that does not mean that in certain areas and at certain times supply will exceed demand. The microelectronics industry must adapt to this.”

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

Chinese pricing policy under scrutiny
What the future could look like can already be seen in the solar energy industry: Chinese suppliers have built up large overcapacity in recent years and are pushing their modules onto the global market at rock-bottom prices. The EU therefore initiated an anti-dumping procedure. To prevent a similar development in the chip industry, the European Commission has been collecting relevant information since July. “It is right that the European Commission tackles the issue at an early stage and conducts research among those affected,” ZVEI boss Weber emphasizes. You can counter this with targeted support to, for example, European companies.

The European semiconductor industry association Esia is already calling for a Chips Act 2.0, which is intended to supplement a law passed last year. With the Chips Act, the EU wants to double the market share of semiconductors produced in Europe to 20 percent by 2030. Merics analyst Hmaidi is also calling for additional government support. However, the EU must work together with other Western countries to avoid a subsidy race. Taiwan, home to the world’s largest chip contract manufacturer TSMC, has spoken in favor of a corresponding agreement.

Advantages and disadvantages of tariffs
Another option is tariffs as planned for Chinese electric cars, Weber says. “We are actually against tariffs. But Europe must be able to act and defend itself. It is therefore right to make preparations – ideally as a deterrent so that the other side prevents the European market from being flooded.” Merics expert Hmaidi doubts the fundamental benefit of such tariffs, as virtually no Chinese semiconductors are imported directly. They enter the country in Chinese equipment. “Instead, I can imagine that there will be some regulations for supply chain or cybersecurity.” 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 operate. For suppliers like ASML, setting up semiconductor factories in China is an important source of income because they supply the necessary machines, explains Jefferies analyst Menon. The Dutch company does about 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 feel the competition from Chinese manufacturers, but on the other hand they are so far at the forefront when it comes to 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 trust in Chinese products is not yet that high,” expert Hmaidi emphasizes.