The chip war is raging in Europe and America... government generosity to attract companies

2023-07-03 13:40:00

electronic chips (iStock)

Race to allocate public subsidies to attract industry tycoons

Posted on: July 03, 2023: 05:40 PM GST Last updated: July 03, 2023: 07:02 PM GST

Governments in Europe and America, using billions of dollars in public subsidies to attract the basic chip industry of the future to their lands, are scrambling to dedicate the country’s return to industrial policy, while raising fears of a flight forward.

The most recent example of this strategy is Germany’s provision of about 10 billion euros to the American “Intel” group to establish a semiconductor production plant in Magdeburg, which is equivalent to almost a third of its total cost.

And the production of these electronic chips, like the industries related to the energy transition, such as electric batteries, has become an essential aspect of the sovereignty of many countries that are competing to focus the manufacture of such products on their lands.

For example, in early June, France announced the granting of a government subsidy of about 40% of the cost of establishing a new factory for the STMicroelectronics group that produces semiconductor technologies in the Grenoble region, while its neighbor Italy will cover about a third of the cost of establishing a factory for the same group in Sicily.

Former French Minister of Economy Michel Saban said, “The concept of sovereignty, which was considered for a long time an argument outdated, is now being taken into account.”

“(government) aid has become a tool for restoring sovereignty,” said Saban, who works as a consulting lawyer.

Europe quickly learned the lesson after the United States passed a law to reduce inflation that allows the allocation of generous subsidies to future industries, and threatens to attract major investments at the expense of the old continent.

Basically, the United States resorted to this law in response to a Chinese policy of allocating huge subsidies to these industries.

No globalization without risks

And after the European competition authorities carefully monitored all government subsidies, they adopted a more flexible and open policy, among its elements, for example, important projects of common European interest (Piiec), or the latest attempts to respond to the American inflation reduction law, i.e. providing similar subsidies with the aim of reducing Projects escape.

In the background of these measures, the European memory preserves the pandemic and the shortage it caused in supplies of protective masks and vaccines, and the fear of a shortage of energy sources after the outbreak of the Russian war on Ukraine. These events and others have shaken the blind confidence in a globalization without risks.

According to Elvir Fabry, a researcher specializing in the geopolitical situation at the European Jacques Delors Institute, the continent’s officials made a decisive decision “about the state subsidies that can be provided to companies,” noting that “the momentum has started.”

German Finance Minister Christian Lindler stressed that “we have no time to waste, others in the world are not asleep.”

He added in recent statements, “Compared to the United States, I am convinced that we do not suffer a deficit in subsidies… but our main deficit is our lack” of the rapid pace in this field.

However, these new approaches threaten to push companies forward by launching a frantic race that may lead to bidding between countries wishing to attract promising industries to their lands at any cost.

The most interesting package

According to Olivier Luancy of the auditing and advisory firm PwC, “In fact, the investor may say: I will go to the country where the package is more interesting,” which he fears will prompt countries to make financial offers to attract industries a priority at the expense of the associated conditions. operations like this.

In addition, European solidarity may suffer as a result of this frantic race to attract companies, with the fear that the main part of them will end up being concentrated in richer countries such as France and Germany.

It is certain that the billions that will be spent to attract the productive capacities of the industries of the future will not solve all the difficulties associated with the sovereign domain. “In the event of great geopolitical tensions, what will happen if these factories managed by decisions taken outside Europe stop working?”

He added, “If it is actually a ‘strategy’, can we ‘localize it’? How far are we able to go?”