Transatlantic Cooperation in the Chip War
Enhancing U.S.-German Policy Coordination on Re-shoring Semiconductor Manufacturing
Speaker: Philip Nock, DAAD/AGI Research Fellow
Moderator: Peter Rashish, Vice President and Director of the Geoeconomics Program, AGI
Microchips have become the basic component of the digital transformation. From smartphones, computers, and cars to jets and drones, nearly every digital device requires semiconductor technology. Yet the interplay of the COVID-19 pandemic, Sino-U.S. rivalry, and industrial miscalculations has triggered a rippling supply-demand imbalance and led to a shortage of microchips. This, in turn, has made governments around the world rethink their existing economic policies and strive to reduce their technological dependencies. In navigating the intricate landscape of semiconductor production, global supply chain dynamics, and geopolitics—the “Chip War”—a collaborative approach between the United States and Germany becomes a strategic imperative. During this webinar, DAAD/AGI Research Fellow Philip Nock will explore the idea that Washington and Berlin need to enhance their tech cooperation and coordination to reduce vulnerabilities in semiconductor manufacturing and supplies effectively. He will present recommendations to enhance policy coordination at the bilateral level, complementing the existing work of the U.S.-EU Trade and Technology Council.
Philip J. Nock is a research fellow at the University of Bonn’s Center for Advanced Security, Strategic and Integration Studies (CASSIS), where he works on digital policies, weaponized interdependence, and semiconductor supply chain security initiatives. He holds a PhD scholarship from the Konrad-Adenauer Foundation (KAS), is part of the PhD study group “Security and Development in the 21st Century” of KAS and is a member of the research collective “The Second Cold War Observatory.” His research interests in international relations lie at the nexus of economic, technology, and security policy. In his PhD, he combines these by examining European policy responses to the weaponization of Sino-U.S. interdependencies in the realm of semiconductor production networks. He holds a BA and an MA from the University of Bonn, during which time he also studied in St. Andrews (UK) and Toronto.
Event Summary
Microchips have become critical components in the global digital transformation, influencing a wide range of industries from automotive to consumer electronics. Their significance was starkly highlighted during the COVID-19 pandemic and the escalating trade tensions between the United States and China, which resulted in severe worldwide chip shortages. These challenges have compelled governments across the globe to reevaluate their technological interdependencies, giving rise to a competitive landscape referred to as the “Chip War.” Key players in this arena include the United States, China, South Korea, Japan, Taiwan, the European Union (with a focus on the Netherlands and Germany), and the United Kingdom.
The United States and some of its allies have experienced a dual phenomenon: while they have lost fabrication plants (fabs), they have concurrently increased their production capacity. Yet South Korea, Taiwan, China, and Singapore have achieved a much higher capacity when compared to the leading industrial locations in the United States and Japan. A significant contributor to this shifting landscape is China’s extensive investment in its domestic semiconductor sector, totaling approximately $123 billion between 2014 and 2021. At the height of the global chip shortage in 2020, China acquired more than half of the world’s chip supply. Despite these efforts, China remains heavily reliant on foreign technologies for advanced semiconductor production, and its return on investment (ROI) in the sector has not matched that of Taiwan, South Korea, or the United States.
EU member-state governments hold a degree of leverage in negotiations regarding the current reorganization of semiconductor supply chains. European industries contain several critical choke points, granting EU member states and, by extension, the European Commission, some influence in discussions with the United States and China. But, without the input of semiconductor manufacturers like TMSC or Samsung, they hold insufficient manufacturing capacity for high-end chips. Nevertheless, EU member states’ industries are crucial for supplying essential materials and equipment, positioning them as vital partners in the semiconductor ecosystem.
The shared vulnerabilities of the United States and EU in semiconductor production—primarily due to offshoring manufacturing to East Asia—have led both to pursue similar strategic goals. This convergence has opened avenues for greater coordination within the transatlantic partnership. Both regions are making substantial investments not only in research and development but also in expanding materials and manufacturing capacity. Importantly, there is a willingness on both sides to include like-minded allies, such as Japan, in their policy frameworks.
However, differing legal and institutional frameworks that govern competition present challenges. Unlike the United States, the EU has redirected funds from existing programs to finance the European Chips Act and has not provided tax incentives to producers. To bridge these gaps, the Biden administration and the von der Leyen Commission established the U.S.-EU Trade and Technology Council (TTC) to facilitate dialogue and cooperation. The Working Group on Semiconductors has initiated significant steps toward reciprocal information sharing and the implementation of a joint early warning mechanism, essential for anticipating future supply chain disruptions.
The United States and European Union have more closely aligned their national security, industrial, and China policies. The Biden administration’s National Security Strategy recognizes the critical role of semiconductor supply chains in U.S. competitiveness and national security, advocating for cooperation with like-minded nations. Similarly, Germany’s National Security Strategy highlights the risks associated with economic dependencies and the intensified competition in international technology.
Looking forward, the Biden administration must aim to connect leadership on critical issues such as artificial intelligence (AI), quantum computing, and semiconductor supply chain security to foster the creation of industrial jobs—an argument that justifies substantial investments in these sectors. Considering Germany’s recent strategic pivot following the Zeitenwende, the country’s approach has become increasingly Europe-oriented, focusing on strengthening production capacity and protecting domestic industries from unfair foreign competition.
While the EU and United States have found common ground in efforts to mitigate economic dependencies with China, the U.S. government’s ambitions appear more feasible. The European Commission’s goal to double its share of global chip production is seen as unrealistic by some experts, particularly given recent announcements that the semiconductor manufacturing projects of Intel in Magdeburg, Saxony-Anhalt, and Wolfspeed in Ensdorf, Saarland, will be substantially delayed. Regarding the TTC, both parties should remain open to structural changes and enhance the existing arrangements on information sharing and early warning mechanisms of the semiconductor working group. Continued cooperation is paramount; the transatlantic partnership cannot afford to lose momentum in this critical area.
Moreover, the EU must address its lack of data and capacity issues because it lacks officials solely responsible for security and supply chains of semiconductors. In general, the EU should emulate Japan’s approach of “maintaining, boosting, and obtaining strategic indispensability,” which focuses on leveraging existing strengths within the semiconductor ecosystem.
Bilateral relations between the United States and Germany are also crucial, necessitating clearer communication about decisions regarding a much-discussed division of labor in semiconductor manufacturing, considering their respective industrial strengths and coordination with other partners. Harmonizing export restrictions will be essential to facilitate smoother cooperation.
Discussion
The discussion highlighted that manufacturing projects in Germany face significant delays, particularly those involving American companies, posing additional challenges to transatlantic cooperation. Germany’s industrial strengths are in key areas such as manufacturing capacity in automotive integrated circuits as well as critical contributions in optics and chemicals in silicon purification.
The webinar underscored the complexities and opportunities in the semiconductor landscape, with the United States, EU, and Germany recognizing the imperative to collaborate closely in an increasingly competitive and interconnected global environment. As geopolitical dynamics continue to evolve in the semiconductor sector, maintaining a robust transatlantic partnership will be crucial for reducing dependencies, ensuring supply chain resilience, and striving for global technological leadership.
This event is supported by the DAAD with funds from the Federal Foreign Office.
