Recap of the First Silicon Wave: Comparing Western Semiconductor Industrial Policies and the Path Forward
- Atsushi Sumikawa
- Aug 21
- 10 min read
Updated: Oct 7
Introduction
The modern economy’s deep reliance on semiconductors has turned the ability to innovate and produce them into a critical geopolitical asset. The global chip shortage triggered by the COVID-19 supply chain disruptions, coupled with soaring demands for advanced chips for AI data centres, has driven Western governments to adopt industrial policies aimed at bolstering semiconductor supply and innovation. The United States took the lead with the landmark CHIPS Act in 2022. Just days later, Japan announced Rapidus, a large-scale public-private joint venture with ambitious goals for logic chip production. About a year afterwards, the European Union introduced its own version of the Chips Act, following the example set by the US and Japan.
More recently, these policies have reached a critical juncture. In the United States, the Trump administration is reviewing Biden-era semiconductor investment and security measures. Meanwhile, in the European Union, momentum is growing to revise the original framework in response to the evolving strategic and industry landscape. As the world enters the second phase of semiconductor policy, the differing approaches of the United States, European Union, and Japan – along with their respective challenges – warrant close examination. Overall, the U.S. pursued a comprehensive industrial and national security package, the EU prioritised supply chain security, and Japan emphasised government-driven strategic investment. Western policymakers and industry leaders should draw lessons from both these differences and shared objectives as they update their strategies for the latter half of the 2020s and beyond.
U.S. CHIPS Act: Comprehensive Package with Strong Federal Funding, Yet Political Uncertainty Ahead
As the first major semiconductor initiative among Western countries, the Creating Helpful Incentives to Produce Semiconductors Act (hereafter, U.S. CHIPS Act) was signed into law in August 2022. It provides a total of 52.7 billion USD (45.2 billion EUR) in federal funding – the largest sum among the three – for objectives including: strengthening manufacturing and supply chains, investing in R&D and a specialised workforce, and supporting related technologies such as nanotechnology, clean energy, quantum computing, and artificial intelligence.
The U.S. CHIPS Act harnesses the country’s abundant fiscal and technological resources to advance a broad set of industrial and national security goals. At the core of its spending, the legislation allocates 39 billion USD (33 billion EUR) worth of grants, loans, and loan guarantees, along with 24 billion USD (20.6 billion EUR) in tax credits, to onshore semiconductor manufacturing capacity by both American and foreign producers. The majority of the funding selection and implementation is administered by the Chips Program Office – newly established within the Department of Commerce. The Act also allocates 2 billion USD ( 1.7 billion EUR) to the Department of Defense and 11 billion (9.4 billion EUR) to the Department of Commerce for R&D activities and workforce development initiatives. These funds support new projects, including the National Semiconductor Technology Center (NSTC), a public-private consortium designed to bridge the gap between laboratory research and commercial manufacturing on a variety of technologies across the semiconductor supply chain. Additionally, as part of its broader objectives, the legislation authorises – but does not appropriate – 170 billion USD (145.9 billion EUR) over five years to support research in emerging technologies related to semiconductors that are aligned with national security objectives.
Beyond subsidising the industry, the U.S. CHIPS Act includes a notable national security component aimed at achieving strategic competition objectives. The so-called ‘guardrail rules’ bar subsidy recipients – American and foreign chipmakers – from expanding manufacturing or R&D activities in adversarial nations, namely China, for ten years. Coupled with the export controls, this measure is intended to prevent the investment and leading technology of the U.S. from being diverted to strategic rivals.
While the Act’s incentives packages have yielded favourable outcomes to domestic chipmaking capabilities so far, the goal of building a fully independent semiconductor industry within the United States remains unclear. Since the bill’s passage, American and foreign chipmakers have announced more than 630 billion USD (541 billion EUR) in U.S. investments, including large-scale projects by industry leaders such as Intel, TSMC, and Samsung. According to the Semiconductor Industry Association, this wave of investment could triple U.S. manufacturing capacity over the next decade. However, despite these gains, achieving supply chain independence remains a long-term goal. While the U.S. leads in the sales of chip design and software, U.S. suppliers still lag significantly behind the domestic market demand across key downstream manufacturing areas, including chip fabrication, materials, tool development, and testing. Onshoring all these processes will take long, substantial efforts, if ever possible. Further uncertainty stems from the Trump administration's ongoing review of chip policies inherited from the Biden era. The possibility of reducing or reversing incentive funding could delay or undermine programme implementation. Worse, the efforts for resilient supply chains will be further compounded by potential impacts from ongoing semiconductor tariff negotiations. These challenges underscore that, despite the CHIPS Act’s comprehensive resource mobilisation, achieving its objectives will depend on sustained efforts in the future.
European Chips Act: Sound Framework, yet Decentralised Implementation Powered by Outdated Covid-era Strategies
One year after the rollout of the U.S. CHIPS Act, the European Union followed with its own version. Approved by both the European Parliament and the Council, the European Chips Act (which does not use an acronym, unlike the American CHIPS Act) took effect in September 2023. Its objectives mirror those of the U.S. measure—strengthening supply chain resilience, advancing regional chip innovation, and addressing talent and workforce shortages. In aggregate, the Act seeks to mobilise 43 billion EUR in public and private funding through 2030, with the overarching objective of doubling the EU’s share of the global semiconductor market from 10% to 20% by the end of the decade.
Like the American version, the onshore manufacturing incentive packages represent the largest portion of the EU Chips Act, totalling 31.5 billion EUR financed through public and private investments to date. Unlike the U.S. model, however, these funding mechanisms do not include tax breaks, and grants and loans are financed by individual member states rather than the European Commission. For the funding for advancing semiconductor R&D, the bill draws 11 billion EUR through a mix of new appropriations and redirects from existing programmes and establishes the Chips for Europe Initiative. This programme, run by a multinational body called the Chips Joint Undertaking, focuses on building pilot lines, establishing technological standards, and developing a skilled workforce to create a favourable industry ecosystem for industry players – resembling the role of the U.S. NSTC.
On top of these funding mechanisms, the European Chips Act has a strong emphasis on strengthening supply chains. Building on the lessons of the COVID-19 chip shortage crisis, the Act guides initiation of semiconductor supply chain monitoring, establishing tools to intervene in times of crisis. Its objectives include creating a system for ‘joint procurement’ by the Commission on behalf of EU countries and industries, and requiring foundries that benefited from state support to supply European customers first.
While the implementation of the European Chips Act has been successful in luring some onshore investments, structural complexities of the funding systems remain a challenge. The incentive packages have already attracted private investment from major industry actors from both within and outside the region, including TSMC’s new production sites in Germany and GlobalFoundries and STMicroelectronics’s joint facility in France. Yet, unlike the American funding model, where the Commerce Department holds centralised authority over funding decisions and implementation, the European incentive process is more complex: while most of the grants or loans are financed by individual member states, they require approval from the European Commission. Additionally, because of the compliance with the EU competition law, investors supported by the Act’s funds are limited to projects that will directly contribute to the innovation of the region, or ‘first-of-the-kind’ technologies or methods, whereas the U.S.CHIPS Act allows investment in mature chip facilities to bolster their supplies. As the shift in the semiconductor market and geopolitical dynamics requires agility, these constraints impose additional time and costs to the implementation of the programmes.
Additionally, critics consider the lack of strategic foresight in resource allocation as a weakness in the European Chips Act. Despite Europe’s near-monopoly in the critical semiconductor equipment production, the Act’s pandemic-era supply chain resilience-focus is considered neglecting strategic investments where the region can sharpen its competitive advantage in the global market. Some also criticise the Act’s ultimate target of doubling the EU’s global market share as aspirational, rather than providing a realistic policy benchmark. Responding to these concerns, a group of core industrial EU member states formed the “Semiconductor Coalition” in 2024 to work closely with the European Commission on strengthening European competitiveness and strategic autonomy. The ongoing coordination efforts suggest that, although the European Chips Act offers a solid foundation, EU leaders must further refine policy targets and address implementation hurdles to keep pace with other Western chip initiatives.
Japan’s Chip Policy: Aggressive Government Investments, Unclear Prospects for Returns
Unlike the U.S. and EU, Japan has not announced a major industry policy architecture exclusively for semiconductors. Instead, the Japanese government launched several broader industrial policies that contain semiconductor elements, such as the 5G Promotion Act in 2022, the Semiconductor and Digital Industry Strategy in 2021 (updated in 2023), and the Economic Security Promotion Act in 2022. Through those initiatives, the country seeks to secure strategic independence in chip supplies while leveraging its existing strengths to position itself as indispensable in the global semiconductor market. In 2020, the government set the ultimate target of tripling the domestic chip market sales from 5 to 15 trillion JPY.
While the Japanese investment in semiconductors follows the trend of domestic innovation and supply chain security, the funding is more strategically concentrated in high-stakes projects where they already have strong comparative advantages in the global market. For onshoring chip-making capabilities, the country spent 1.7 trillion JPY (9.9 billion EUR) to stimulate investment from global manufacturers such as TSMC and Micron. Aside from that, the government has spent almost the same amount for a public-private joint mega venture named Rapidus to develop a 2nm logic chip fabrication capability – the world’s leading-edge – at a domestic site. For domestic R&D activities, the government raised 45 billion JPY (262 million EUR) to establish the Leading-edge Semiconductor Technology Center – equivalent of the U.S.’s NSTC – whose activities include promoting strategically important innovations such as of chip design, new chip fabrication, optical and optoelectronic circuit technologies. On top of that, the ministry is working with regional governments and educational institutions to develop specialised talents needed for those expansions. In aggregate, the country has raised 3.9 trillion JPY (22.7 billion EUR) for the semiconductor industry between fiscal 2021 and 2023, marking a higher investment-to-GDP ratio among the U.S. and European peers.
While large government funding projects are effective in onshoring production capabilities, the concentration of public funding into specific projects raises scepticism. Thus far, investment in domestic chipmaking facilities is beginning to yield results, with TSMC and Micron’s new production sites soon beginning operations, and Samsung is constructing a new research base in Japan. However, the aggressive public investment in Rapidus has raised concerns, as investors remain hesitant to back its unproven chip production capabilities for hyper-complex 2nm transistors. Some critics warn that injecting substantial public funds into the project could even distort the company’s incentives and lead to poor strategic choices. In the past, the Japanese government backed a semiconductor foundry venture tasked to revive the country’s chipmaking industry, which eventually went bankrupt due to the severe international competition. As Tokyo moves forward with its current policies and plans to accelerate strategic public investment through 2030, stakeholders remain at risk of repeating past failures of government-driven, high-stakes industrial projects.
Toward the ‘Chips Act 2.0’ Era
In the semiconductor industrial policy race that set off in the early 2020s, three Western chip powerhouses pursued different strategic approaches. The United States leverages its considerable technological and fiscal resources to pursue comprehensive objectives for national security and the semiconductor industry. Its biggest drawback, however, is political risks deriving from the Trump administration, which could reverse the current investments in the future. In Europe, adopting a framework modelled after the U.S. CHIPS Act has laid a solid foundation for securing supplies and accelerating innovation. Yet its decentralised funding mechanisms and limited strategic consideration underscore the need for future adjustments. Japan’s government is aggressively allocating its strategic resources. This, however, leaves many in doubt about the long-term effectiveness of some projects with a large government presence.
Yet all three industrial policies also share certain challenges and objectives. The United States, Europe, and Japan each face the pressing need of onshoring chipmaking capabilities for stable supplies. All governments also confront the ongoing need to invest in R&D to advance chipmaking innovations, as well as to cultivate a specialised workforce and talent for both laboratories and manufacturers. Underpinning all these efforts, ultimately, is a shared geopolitical reality: supply chain risks and strategic competition with non-liberal powers.
As we head towards the age of Chips Act 2.0 in the latter half of the 2020s, policymakers behind the three industrial frameworks should recognise differences and similarities among their peers, and learn from the others while pursuing cooperation in areas where interests align. The European Union can draw lessons, for example, from the Japanese model, where the government has geopolitical foresight, concentrating resources in areas where it can use it as an advantage in the global semiconductor supply chain. Japan, on the other hand, can learn from the U.S. and European models, which direct more resources towards cultivating a sustainable R&D ecosystem across a broad range of semiconductor fields, involving various industry actors. At the same time, all three policy frameworks should align to avoid mutually suboptimal outcomes – such as a subsidy race to the bottom – while pooling scarce R&D and manufacturing resources for mutual benefit. Providing incentives to foreign companies from partnering nations, along with the ongoing cooperation between the NSTC and its European and Japanese counterparts, offer promising models. Ultimately, Western semiconductor industrial policies will be most effective when they strike a healthy balance between industry competition, innovation, and security considerations, while ensuring a cooperative approach among liberal democracies.
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ABOUT THE AUTHOR
Atsushi Sumikawa is a graduate of Georgetown University, where he focused on the intersection of national security and emerging technologies in a master’s program. Prior to his graduate studies, he worked at the United Nations Information Centre and the International Security Industry Council Japan, both based in Tokyo.
This article was edited by Kalos Lau and Douglas Brenton Anderson.