EU chip sector faces bleak future amid US and Chinese risks

Europe wants to double its share of global semiconductor production. The problem is that almost every piece of that ambition depends on someone else’s goodwill.

A report released June 4 by the Istituto Affari Internazionali (IAI) lays out the uncomfortable reality facing the EU chip sector: the continent is caught between US policy that pulls investment westward and Chinese leverage over the raw materials that make chips possible in the first place.

Squeezed from both sides

The European Chips Act set a clear target: grow Europe’s share of global semiconductor production from 10% to 20%. That goal was ambitious when it was written. It looks harder now.

On one side, the US CHIPS and Science Act has been quietly hoovering up investment that might otherwise have landed in Europe. Nokia’s $4B investment plan for AI-related technology in the US, announced in late 2025, is the kind of capital shift the IAI report points to as a concrete symptom of the problem.

On the other side, China holds significant leverage over the raw materials Europe needs to actually make chips. Gallium and rare earth elements, both critical inputs in semiconductor manufacturing, are areas where Chinese supply dominance creates a structural vulnerability that no amount of European fab investment can easily solve.

The US export controls on advanced chip technology bound for China add another layer of complexity. Those restrictions were designed to limit China’s access to cutting-edge semiconductors, but they have ripple effects across global supply chains, and European firms sit squarely in those ripples.

Where Europe actually stands

Europe has real capabilities in mature-node chip production, the older manufacturing processes above 28 nanometers that power everything from cars to industrial equipment. Firms like STMicroelectronics have built genuine expertise in this segment.

But mature nodes are also exactly where China is expanding most aggressively. Beijing’s response to US export controls has been to pour resources into the legacy chip segments it can still access, which means European firms with strengths in that same space now face intensifying Chinese competition on price and scale.

The global semiconductor market is projected to surpass $1 trillion in revenues by 2026. Europe’s current 10% share of production means it is not capturing anything close to a proportional slice of that growth.

Europe’s dependence on Taiwan for advanced chip supply, particularly from TSMC, means that any escalation in cross-strait tensions creates immediate exposure for European manufacturers and the industries they supply. Automotive, defense, and industrial sectors across the continent run on chips that flow through a geography that is not known for geopolitical stability right now.

What investors should watch

First, the European Chips Act’s effectiveness is the central policy variable. The legislation was designed to attract investment, fund research, and build supply chain resilience. Nokia’s US pivot suggests it is not obviously competing successfully with US subsidy packages for the same pool of global capital.

Second, raw material security is becoming a strategic bottleneck. China’s dominance in gallium and rare earth supply is not a new concern, but it is an unresolved one.

Third, the mature-node competitive picture is shifting. STMicroelectronics and its European peers built their businesses in segments that are now seeing a flood of Chinese capacity. Margin pressure in legacy chip production is a credible risk.

The firms most likely to navigate this environment successfully are those with genuine technological differentiation in specialized analog chips, power semiconductors, and automotive-grade components. Europe has pockets of genuine expertise in each of those categories.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.