A report cautions that the chip industry in Europe is confronting a grim outlook due to risks stemming from China and the US.

      A recent report from the EU Institute for Security Studies (EUISS) and the French think tank Institut Montaigne cautions that the future of Europe's semiconductor industry looks grim, caught between Chinese export restrictions and increasing reliance on US technology. Released on Thursday, the study is part of an 18-month EU-funded effort known as the Chips Diplomacy Support Initiative.

      The authors indicate that the risks facing Europe's chip sector have significantly changed over the past year, with concerns about Washington now weighing nearly as heavily on Brussels as worries about Beijing. Joris Teer, a policy analyst at EUISS and co-author of the report, told Reuters that “while Beijing still seems to be the primary threat, dependence on Washington has become a much greater issue, particularly during the second Trump administration.”

      The report highlights China’s readiness to limit exports of critical minerals and rare-earth magnets—materials vital for chip manufacturing—as an ongoing and immediate threat. It also points out that tensions in the Taiwan Strait could affect the island’s dominant position in advanced chip production at any time.

      On the other hand, the risks associated with Washington are more structural. A significant portion of the software and design tools that support European chip design comes from the US, and the report draws attention to a bill currently progressing through Congress, known as the MATCH Act, which would allow Washington to impose unilateral export controls on allies who do not align their policies on China within a specified timeframe.

      This is particularly critical for ASML in the Netherlands, now Europe's most valuable listed company, whose lithography exports to China have already become a recurring issue in transatlantic trade tensions. Teer suggests a more focused approach, telling Reuters that Europe's “only viable path” is to leverage existing strengths, specifically mentioning ASML instead of pursuing the broad self-sufficiency in chips that Brussels has aimed for in the past.

      This perspective reflects a shift already seen in EU policy. The bloc's Chips Act 2.0 proposal, unveiled in June, emphasizes demand-side incentives rather than the original Chips Act's now-abandoned goal of securing a 20% share of the global market by 2030. The report comes just weeks after the EU formally joined Pax Silica, a US-led chip alliance that France has criticized as a form of technological domination.

      The tension between the desire for access to US-aligned supply chains and the resentment of the leverage this access grants to Washington permeates much of the report's findings. The authors identify Europe’s high energy costs, limited private risk capital, and declining chip-consuming industries as structural vulnerabilities that exacerbate external threats. However, this is not framed as a call for Europe to outright choose a side.

      Instead, the report portrays Europe as caught between two dependencies—it relies on Taiwan for advanced manufacturing and on the US for design software—while facing the constant risk of Chinese retaliation regarding materials. Progress in the sector has been tangible but gradual: Infineon's new €5 billion factory in Dresden, highlighted as the Chips Act’s first major success, showcases the significant investment required just to keep up.

      China's leverage is characterized as immediate and blunt, implementable within weeks through export licensing on materials that Europe cannot easily obtain elsewhere. Conversely, Washington’s leverage is slower but potentially more damaging, rooted in decades of reliance on American design software and manufacturing tools, which European firms have had little incentive to replace.

      A sudden halt in Chinese material supplies would necessitate the kind of emergency stockpiling the EU has already begun to practice through its strategy for critical raw materials. In contrast, a gradual tightening of US technology access would require the sort of persistent industrial policy Europe has historically struggled to maintain through political changes.

      The report does not conclusively identify which threat requires more immediate attention; instead, it emphasizes that policymakers can no longer treat one as hypothetical and the other as a tangible reality.