DARPA’s Initiative
Federal support for the semiconductor industry pursuant to the CHIPS Act will be augmented by activities at the Defense Advanced Research Projects Agency (DARPA), funded through the DOD’s budget rather than the CHIPS Act. DARPA plans to launch a domestic hub for prototyping advanced semiconductor fabrication techniques. Given DARPA’s extraordinary track record of breakthrough innovations, this development is significant, but its impact is likely to be felt only over the longer term.
The research center envisioned by DARPA will focus on 3D heterogeneous integrated (3DHI) microsystems, which feature the integration of diverse chip types into a single package for dramatically improved performance. DARPA regards this effort as potentially transformational for the U.S. economy and hopes to stand up the center by 2029. DARPA is establishing teams via a contract to pursue the initiative in two phases, each with a projected budget of $420 million. The goal is to create “a self-sustaining 3DHI center at an existing facility that is owned and operated by a non-federal entity, and accessible to users in academia, government, and industry.”
The 3D projects bolster DARPA’s Electronics Resurgence Initiative (ERI)—launched in 2017, with a follow-on ERI 2.0 announced in 2022—which is focusing on advanced manufacturing opportunities and enabling electronic systems to function in extreme environments. DARPA plans to spend $3 billion on this effort over the next five years. DARPA’s Beyond Scaling Initiative, launched in 2017, develops software to automate and optimize chip design.
Perhaps what is most significant about the DARPA initiatives is that they underscore that the CHIPS Act, while remarkable, will not be sufficient on its own to reinvigorate and grow this key industry in the United States. The U.S. effort needs to be sustained and at scale if it is to have the desired impact, particularly in light of other countries’ sizeable investments.
Synopsis of the EU Chips Act
Arguably one major impact of the U.S. CHIPS Act was to stimulate a similar effort in Europe. The European Commission and European Parliament approved the European Chips Act in July 2023, with the act becoming effective on September 21, 2023.
As noted above, the EU Chips Act involves at least €43 billion in identified public funding, with the expectation that this will spur a roughly equal amount of private investment. Most of the public funding will be provided by the governments of the member states, not through the commission.
According to the European Union, the €43 billion in public funds will include some private money and only €3.3 billion from the European Union’s budget, making the composition of the Chips Act funding less distinct. A 2023 analysis of the Chips Act conducted under the auspices of the Austrian government laments that “it is difficult to understand who is funding what, and how much fresh money is available for the Chips Act . . . the Chips Act is to be supported with an estimated overall level of policy-driven investment in excess of EUR 43 billion up to 2030. However, it remains unclear how much will come from the EU level, Member States and companies.”
The EU Chips Act is designed to ensure Europe’s “strategic autonomy” and sovereignty by enabling a secure supply of critical chips. To do this, the European Union is creating three “pillars”:
- The Joint Undertaking: The first pillar is a public-private collaboration designated as the EU Chips Joint Undertaking (JU). It focuses on developing advanced chip technology (2 nm and below, quantum chips, and new production methods for such technologies). Themes include semiconductor research, pilot lines, standards, certification for energy efficiency and security of chips, skills, and networking of semiconductor research centers. Pillar one will reportedly be publicly funded with €11 billion. This effort roughly corresponds to the U.S. plan for the NSTC.
- Support Advanced Chip Production in Europe: The second pillar, which is to absorb the bulk of EU public funding, will seek to establish vertically integrated manufacturing centers and “open EU foundries,” which will produce chips designed by others for third parties. To qualify, projects must be “first-of-kind” in the European Union, involving novel technology nodes, substrate materials, or other innovations that enhance chip performance, such as reduced power requirements and durability. Participating second-pillar companies will receive priority access to the pilot lines established pursuant to the first pillar. Companies participating in the second pillar are eligible for financial support from the European Union and member states, with funding reportedly totaling some $30 billion. Companies like Infineon and STMicro as well as Intel are seeking a portion of these funds to support new facilities.
- Monitoring Supply: The third pillar will seek to ensure continuity of supply in the event of a chip shortage. It will involve monitoring to provide early warning of looming shortages, coordinated procurement, and a mandatory shift in production toward scarce chip types, with favorable investment terms offered to companies as a quid pro quo.
Governance of the EU Chips Act will be divided between the European Semiconductor Board and the Chips Joint Undertaking. The board will comprise representatives of the member states and be chaired by the European Commission. The Governing Board of the Chips Joint Undertaking consists of representatives from participating member states, corporate representatives, and the European Commission. Within the commission, the Chips Act is the responsibility of the Directorate-General for Communications Networks, Content, and Technology (DG-CNET).
Implementation to Date
Europe is making impressive progress with multiple major announcements. As in the United States, the prospect of public funding is having a major catalytic impact. It is also evident from investment announcements and approvals granted by the European Union and member states that implementation of the EU Chips Act will entail major collaborations with foreign partners, notably U.S. firms but also Taiwan’s TSMC.
- A leading example is U.S.-based Intel, which has outlined its plan to invest $88 billion in expanding its chip research and manufacturing facilities in Europe. In 2023, Intel secured a commitment from the government of Germany for nearly $11 billion in subsidies, which will be used to fund a chipmaking facility in Magdeburg. For its part, Intel will invest €30 billion in this project. Intel will invest €12 billion in Leixlip, Ireland, to double its manufacturing space for Intel 4 process technology. In addition, Intel is investing $4.6 billion in an assembly and test facility in Poland, which will test Intel chips fabricated in Germany and Ireland. The Polish government is expected to cover about one-third of this investment. Intel is also investing in other chip projects in France, Italy, and Spain.
- In a cooperative effort, U.S.-based GlobalFoundries and STMicroelectronics have secured approval from the European Union to receive French government subsidies to build a chip fabrication plant in Crolles, France. The French will provide $8.13 billion to this project. GlobalFoundries is also investing in the expansion of its existing facilities in Dresden, Germany.
- U.S.-based chipmaker Wolfspeed has announced plans to invest $3 billion in a new silicon carbide chip plant in Germany and expects the German government to provide 20 percent of this amount in subsidies to support the project.
- In August 2023, Infineon (Germany), Bosch (Germany), TSMC (Taiwan), and NXP Semiconductors (the Netherlands) announced plans to establish the European Semiconductor Manufacturing Company to build a chip fabrication plant in Dresden that will be majority-owned and operated by TSMC. Total investments are expected to be €10 billion and receive “strong support” from the European Union and the German government.
- In 2023, Germany’s Infineon announced plans to build a €5 billion semiconductor manufacturing facility in Dresden to make power semiconductors and analog and mixed signals components. It is seeking €1 billion in public funding to support the project.
- The European Union has approved grants of €292.5 million from the government of Italy to STMicroelectronics to build a silicon carbide semiconductor substrate manufacturing plant in Catania. In July 2024, the Chips JU announced the availability of €325 million in calling for proposals for chips research, including the creation of “competence centers” to provide technical expertise and research support, particularly for small and medium enterprises.
Government-to-Government Bilateral Engagement
Both the U.S. and the EU Chips Acts mandate international collaboration, a recognition that neither region can achieve self-sufficiency in microelectronics. While the precise form such collaboration will take is not clear, certain broad themes have begun to emerge.
Alignment of Export Controls: The United States and the European Union are taking concrete steps to align their chip technology export controls with respect to “countries of concern,” principally China. The U.S. Department of Commerce has imposed strict controls on the export of U.S. chips and chipmaking technology to China. In September 2023, the government of the Netherlands established new export licensing rules which will prevent the Dutch maker of extreme ultraviolet lithography equipment from exporting its most advanced chipmaking tools and technology to China. The European Union has released a white paper that proposes to establish a system of export controls at the EU level, as opposed to the current patchwork regime in which member states unilaterally implement their own controls.
Support for Multilateral Efforts: The U.S. CHIPS Act creates a $500 million International Technology Security and Innovation Fund administered by the State Department to support the coordination of chip export controls between the United States and its allies and partners. Participation in the fund is contingent on countries “having export controls on semiconductor trade with China that are ‘substantially equivalent’ to those imposed by the U.S.” As previous CSIS analysis has argued, new arrangements for aligning export controls are critical for the success of these efforts.
Alignment of Outbound Investment Screening: In August 2023, President Biden signed an executive order restricting outbound U.S. investment into China’s semiconductor, quantum computing, and artificial intelligence industries. A senior administration official said that some U.S. allies, including the European Commission and Germany, were contemplating the imposition of “their own similar programs.” Some analysts have suggested that the multilateral approach that has emerged with respect to chip technology exports to China could serve as a model for multilateral controls on outbound investments in AI and other sensitive technologies to China.
An Effective TTC Bilateral Working Group: The United States and the European Union have established a standing bilateral working group under the EU-U.S. Trade and Technology Council (TTC), which, among many other issues, is addressing semiconductor-related matters of concern to both parties. The TTC was established in 2021 to serve as a forum “to coordinate approaches to key global trade, economic and technology issues and to deepen transatlantic trade and economic relations based on shared democratic values.” The TTC comprises a number of working groups, including one focusing on “secure supply chains, including semiconductors” and another addressing “export controls.” Other working groups address themes such as climate and green tech, technology standards cooperation, and data governance. The TTC meets regularly, with recent meetings in May 2023, January 2024, and April 2024.
An Early Warning System: According to Adrienne Elrod of the CHIPS Office, the European Union and the United States, working within the TTC framework, have completed an early warning system to alert the two parties to potential disruptions in the semiconductor supply chain.
A Transparency Mechanism: The parties have completed work on a transparency mechanism for sharing information about public support for the semiconductor producers of both regions, part of a bilateral effort to avoid a subsidies “race to the bottom.”
Regulatory Challenges: The U.S. Chamber of Commerce has expressed the hope that the United States and the European Union will bilaterally address the European Union’s pending “Corporate Sustainability Due Diligence Directive,” which proposes the phaseout of perfluorinated and polyperfluorinated alkyl substances (PFAS), which “are a critical component of the semiconductor industry, specifically, in the manufacturing of microchips. Currently, there are no viable replacements for this application on the market.”
Precompetitive R&D: Major research and development resources will be necessary to enable the U.S. and EU chip industries to remain internationally competitive. Both Chips Acts commit substantial funds to precompetitive R&D—in the European Union, this effort is led by the EU Chips Joint Undertaking and in the United States it will be led by the NSTC. The parties recognize that collaboration in the precompetitive space is essential given the sheer scale of the technological challenge—and, in some cases, the need to avoid duplication—although multiple paths toward similar research objectives can often be fruitful in unexpected ways. U.S. and EU companies, universities, and public research organizations are already engaged in a wide range of precompetitive R&D collaborations bringing together U.S. and EU researchers. The question is whether the new research initiatives envisioned by the dual Chips Acts can augment, inform, and perhaps coordinate these efforts or serve to reinforce them through a major injection of resources.
A Need for Roadmaps? An obvious role for the U.S. NSTC and its national and EU counterparts would be to serve as research hubs at the center of broader chip research networks to identify potential technological stumbling blocks in any aspect of the semiconductor ecosystem, from materials and tools through chip fabrication, assembly, test, and packaging. These challenges can then be addressed directly at the U.S. and EU hubs themselves or by delegation to other proven research entities in the network. The U.S. Sematech consortium, formed in 1988, served this function, overseeing the creation of a chip industry “roadmap” to spot looming technological hurdles and ensure that adequate research efforts were directed to surmount those hurdles, whether by Sematech itself or by other public or private actors. This role would require informed cooperative leadership and ongoing roadmap efforts.
Opportunities for Cooperation: On November 30, 2023, the European Union’s Joint Undertaking issued a €1.67 billion call for proposals to develop pilot lines for various chip technologies, thus giving an indication of the chip research themes most of interest to Europe. The pilot line awards were announced in April 2024. Some of the themes are coextensive with a number of U.S. industry and government chip technology concerns, and the areas of overlap could form the basis for bilateral collaboration:
- Advanced Heterogeneous System Integration: Heterogenous systems integration and assembly involve the use of advanced packaging technologies to combine semiconductor materials, circuits, and components into a single compact system. This effort parallels the U.S. DARPA chip effort noted above as well as the packaging initiative under the auspices of the Commerce Department.
- Leading-Edge Nodes: The project of manufacturing nodes at or below 2 nm envisions closing or at least reducing the technological gap with Taiwan and South Korea in leading-edge chips—a major U.S. goal.
- Fully Depleted Silicon-on-Insulator (FD-SOI) toward 7 nm: FD-SOI is a manufacturing process that improves chip performance and reduces power consumption. These devices have applications in the automotive sector, the Internet of Things, and telecommunications, among other areas.
- Wide Bandgap Semiconductors: Wide bandgap semiconductors employ materials that enable a chip to operate at higher voltage, frequency, and temperature than standard silicon chips. These devices have applications in power generation, electric vehicles, telecommunications, and aerospace.
A number of observers have noted that a collaboration between the NSTC and imec, the European Union’s foremost microelectronics research center, is an obvious way to launch a strategic effort by the United States and the European Union to coordinate their chip R&D agendas. Belgium-based imec has an unparalleled record of international collaborations in semiconductors and has been characterized by The Economist as “one of the most essential industrial research-and-development research and development (R&D) centres on the planet.”
- Imec has suggested a collaboration in which it concentrates on early-stage technology development closer to basic research with a 7–10 year time horizon (device architectures and process modules), while the NSTC focuses on development stages closer to the market, such as prototyping, scaling, and transfer to manufacturing, with a 4–6 year time horizon. Some cooperation reflecting this approach appears to be underway.
- To enable a rapid and effective ramp-up, this effort should leverage existing chip research infrastructure—notably New York CREATES Nanotech Complex in Albany, imec in Flanders, CEA-Leti in Grenoble, and the German Fraunhofer centers focused on semiconductor technologies. These facilities have enormous advantages in terms of existing infrastructure and the ability to add on new capabilities at lower cost and with less regulatory overhang. They also benefit from the presence of established partners and protocols, long-standing state or regional support, and well-developed networks of related firms.
- It is worth noting that proposals to construct “greenfield” facilities will encounter daunting hurdles in terms of the cost and regulatory delays associated with new construction, the time required for construction, and the need to recruit and staff a new facility. Indeed, the capital costs for a major new facility are beyond the resources of the CHIPS Act and certainly not envisaged in Europe.
Conclusion
It would be difficult to identify any historical precedent for the current U.S.-EU effort to coordinate their industrial policies to achieve common objectives in a vital sector. Bilateral relations have long been marred by acrimonious disputes over agriculture, steel, and commercial aircraft. Nonetheless, the Atlantic community has experienced a common economic trauma—the Covid-19-driven chip shortage—and it now confronts a shared strategic and commercial challenge from China. Consequently, the drive for a more cooperative approach is real.
The good news is that the foundations for productive collaboration already exist in the form of the multiple transatlantic partnerships that have grown organically between the companies, universities, and research organizations on both sides of the Atlantic. Early developments of the TTC are arguably auspicious—the parties’ joint actions on export controls and the deliberations and cooperation in the TTC are both positive indicators of a will to cooperate at the political level.
Cooperation, however, is harder in practice than in declarations, especially when competing perspectives and needs, differing capabilities, and the competing policies and practices of national and supernational bureaucracies come into play. Even so, the alignments in place suggest that current plans for cooperation among the regional cooperative research institutes are well suited—indeed best suited—to lead concrete, mutually advantageous cooperation in close consultation with the companies themselves and leading research universities. Providing the policy space for this organic cooperation based on the identification of productive opportunities may be in fact the best path forward, one that benefits from high-level approval but is driven by technological opportunity and commercial needs.
Sujai Shivakumar is director and senior fellow of Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Charles Wessner is a senior adviser (non-resident) with Renewing American Innovation at CSIS. Thomas Howell is an international trade attorney specializing in the semiconductor industry and a consultant with Renewing American Innovation at CSIS.
This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.
