Summary
An independent, EU-funded analysis produced by the European Union’s Institute for Security Studies together with the French think-tank Institut Montaigne finds the outlook for Europe’s chip sector bleak. The study identifies Chinese export controls on critical minerals and magnets and the risk of conflict in the Taiwan Strait as major supply threats. It also flags Europe’s dependence on U.S. technology - including design software and chip-making equipment - as a significant vulnerability, alongside persistent domestic weaknesses that undermine competitiveness.
Report findings and geopolitical pressures
The report, which drew on industry, political and academic sources, points to export controls Beijing could impose on critical minerals and magnets as a direct supply risk. It also cites the prospect of a war in the Taiwan Strait as another major threat to chip supply chains. In addition to these China-related vulnerabilities, the authors highlight Europe’s reliance on U.S. technology, noting that important elements of chip production such as design software and advanced manufacturing equipment come from American sources.
That U.S. leverage includes a potential for Washington to restrict exports from suppliers to China. The report specifically notes the possibility that the United States could block exports to China by ASML, which it identifies as Europe’s most valuable company and a leading producer of chipmaking equipment.
Co-author Joris Teer, a policy analyst at the Institute for Security Studies, said: "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." The study also references an ongoing debate in the U.S. Congress over proposed legislation that would permit Washington to unilaterally impose export controls on allied countries and their firms.
EU policy response and strategic options
To bolster the sector, the European Commission has put forward a Chips Act 2.0 proposal in June that seeks to strengthen demand for domestically produced chips and offer incentives for industry development. The report notes that Brussels has also joined Washington’s "Pax Silica," described as an allied effort to coordinate and secure semiconductor supply chains.
Teer argues that, alongside allied cooperation to counter China, Europe’s "only viable path" is to build on existing pockets of strength. The report points to the continent’s specialized capabilities - for example in the chipmaking equipment produced by ASML - as potential leverage to improve Europe’s position in the global semiconductor landscape.
Domestic structural weaknesses
Beyond geopolitical and supply-chain vulnerabilities, the analysis identifies several internal factors undermining competitiveness: persistently high energy prices, a shortfall of private capital for investment, and a decline in regional industries that consume chips. These factors, the report concludes, have collectively weakened the EU’s domestic chip ecosystem and its resilience to external shocks.
Implications
The report frames the combination of external geopolitical risks and internal structural shortcomings as creating a challenging environment for Europe’s semiconductor sector. It presents allied coordination and a focus on existing industrial strengths as the principal policy recommendations to mitigate those risks.