China and US risks leave Europe’s chip sector facing a bleak future, report warns

A new report from the EU Institute for Security Studies (EUISS) and the French think tank Institut Montaigne warns that Europe’s semiconductor sector faces a bleak future, squeezed between Chinese export controls and a growing dependence on US technology.

The study, published on Thursday, forms part of an 18-month, EU-funded project called the Chips Diplomacy Support Initiative.

Its authors argue the risks to Europe’s chip industry have shifted meaningfully over the past year, with Washington now weighing almost as heavily on Brussels’ mind as Beijing does.

Joris Teer, a policy analyst at EUISS and one of the report’s co-authors, told Reuters that “while Beijing still appears to be the biggest threat, dependence on Washington seems to have become of much greater concern under the second Trump administration.”

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The report points to China’s willingness to restrict exports of critical minerals and rare-earth magnets, materials essential to chipmaking equipment, as a persistent and immediate danger.

It pairs that with the risk that Taiwan Strait tensions could disrupt the island’s dominance of advanced chip manufacturing at any point.

The Washington-side risk is more structural than the Chinese one. Much of the software and design tooling underpinning European chip design originates in the US, and the report flags a bill moving through Congress, known as the MATCH Act, that would let Washington impose export controls unilaterally on allies that do not align their China policy within a set window.

That matters acutely for the Netherlands’ ASML, now Europe’s most valuable listed company, whose lithography exports to China have already become a recurring flashpoint in transatlantic trade friction.

Teer’s prescription is narrower than the threat, though: he told Reuters that Europe’s “only viable path” is to build on strengths it already has, naming ASML specifically rather than calling for the broad chip self-sufficiency Brussels has chased before.

That framing echoes a shift already visible in EU policy. The bloc’s Chips Act 2.0 proposal, revealed in June, leans on demand-side incentives rather than the original Chips Act’s now-abandoned goal of a 20% global market share by 2030.

The report also lands weeks after the EU formally joined Pax Silica, a US-led chip pact that France publicly criticised as a form of technological colonisation.

That tension, between wanting access to US-aligned supply chains and resenting the leverage that access hands Washington, runs through much of the new report’s argument.

The authors cite Europe’s high energy costs, thin pools of private risk capital, and a shrinking base of chip-consuming industries as structural weaknesses compounding the external threats. None of this is presented as a call for Europe to choose a side outright.

Rather, the report frames Europe’s position as caught between two dependencies it cannot easily shed, on Taiwan for advanced manufacturing and on the US for design software, while Chinese retaliation over materials remains an ever-present threat.

Progress on the ground has been real but incremental: Infineon’s new €5 billion fab in Dresden, held up as the Chips Act’s first major success, illustrates the scale of investment needed just to keep pace.

China’s leverage is described as blunt and immediate, deployable within weeks through export licensing on materials Europe cannot easily source elsewhere.

Washington’s leverage is slower-moving but potentially more corrosive, embedded in decades of dependence on American design software and manufacturing tools European firms have had little incentive to replace.

A sudden Chinese materials cutoff would demand the kind of emergency stockpiling the EU has already begun rehearsing through its critical raw materials strategy.

A slow tightening of US technology access, by contrast, would require the sort of patient industrial policy Europe has historically struggled to sustain across political cycles.

The report does not resolve which threat deserves more urgent attention, only that policymakers can no longer treat one as hypothetical and the other as real.