A New Economic Security Consensus? Semiconductor Nationalism in China and the United States, and Europe’s Choices

As the European Commission revises the 2022 EU Chips Act and prepares a new wave of policy measures to support the European semiconductor ecosystem, it is operating in an environment where large-scale government interventionhas become the new normal. In a context of heightened power competition, both the United States and China treat control over the semiconductor supply chain as a matter of national security. Consequently, both countries have crafted powerful industrial strategies that are to some extent comparable in their stated goal to secure and expand their own semiconductor industrial base (SIB). Interestingly, the language of “self-sufficiency” has appeared in the United States, with Commerce Secretary Howard Lutnick stating that the US is “going to bring it all over so we become self-sufficient in the capacity of building semiconductors".
 

China’s one hurdle and many successes

China’s progress in semiconductors is often obscured by the impact of export controls in advanced node and high-performance chips. Huawei, despite its technological prowess, is not able to rival Nvidia in chip design. On the production side, SMIC has trouble achieving satisfactory yields. The equipment manufacturers are struggling to provide reliable tools for domestic fabs, leading to a booming second hand market (of which ASML, among others, benefits a lot). These difficulties are indications that export control has successfully maintained so far the "computing power gap" in favor of the United States.

The export controls have been a catalyst for China’s domestic firms. Sanctions have allowed them to try out their product in replacement of ‘Western’ ones. Despite their difficulties, China equipment manufacturers are gaining market share, to the point that the American Congress is moving to curtail their exports. Huawei is still, despite sanctions, spearheading and organizing China’s IC ecosystems upgraded through its fab’s projects and the Hubble funds. Even as the United States allowed exports of some H200 advanced chips, the Chinese government has imposed a series of protectionist measures to make sure that domestic AI chips can still find customers.

Besides export control, China has developed a tax breaks strategy that deserves particular attention. The system rests on three main pillars.

• Generous corporate income tax breaks holidays provide long-term financial support for capital-intensive fabrication plants: firms producing chips at advanced nodes (28 nm and below) can benefit from up to ten years of tax exemption once profitable, while producers at more mature nodes receive shorter but still substantial "tax holiday" schemes. 
• China uses powerful R&D incentives, allowing semiconductor firms to deduct up to 120% of their research and development spending from taxable income, an arrangement that can significantly reduce or even eliminate tax liabilities while subsidizing innovation cycles. 
• As part of the 15th Five-Year Plan, the government now grants broad import duty exemptions for critical equipment, components, and specialized materials that cannot yet be produced domestically, lowering the cost of acquiring advanced manufacturing capabilities.

Outside of the advanced chips segments, China’s progresses are direct threats to previous European strongpoints in the supply chain. In legacy chips (above 22 nm), China will account for 39% of world production capacity by 2027. The mainland registers 4 million wafer starts per month (WSPM, 200mm equivalent) compared to around 3.3 million WSPM of planned capacity in the rest of the world. This increased capacity is concentrated in power as well as analog chips, segments where European and Japanese players are historically strong. Chinese foundries will be able to produce en masse and below global market prices, thereby outcompeting and outperforming European plants. Incumbent leaders (STM, Bosch, etc.) have already announced job cuts in Europe, citing Chinese competition and structural costs such as energy.

China is also increasingly leading in alternative or new technologies. RISC-V, an open-source instruction set architecture, became popular among China’s fabless. Beijing Institute of Open Source chips achieved international recognition. On the corporate side, T-head semiconductor, an Alibaba spin-off, successfully designed a high-performance, server oriented RISC-V chip with good performance, demonstrated by licensing its processor to 300 clients. In total, China accounts for 50% of all RISC-V cores shipments.

The Trump administration’s "strategic license to operate"

According to Howard Lutnick, the goal of the Trump administration is "40 percent market share" in leading-edge semiconductor manufacturing by 2028. The multipronged American approach mixing tariffs, diplomatic pressure and massive tax breaks for domestic investments has proved highly effective. In short, the United States fab capacity build-up is the most significant around the planet, exceeding China’s, especially given the US ‘s success in attracting investment in advanced logic chips and high bandwidth memory. 

A few metrics say a lot about the revival of American SIB. The SIA reports that since the CHIPS Act, over 140 new projects have broken ground, totalizing more than €540 billion in investments. A recent OECD report found that the United States is leading in capacity increase in analog chips, advanced logic chips and second in commodity memory. The American growth in fab capacity between 2022 and 2032 is set to twice that of the rest of the world. The Trump administration's use of tariffs effectively turned capital expenditures into a "strategic license to operate". The January 2026 section 232 tariffs are designed to encourage foreign IC firms to expand capacity in the US. Following the August 2025 EU-US trade deal, some European companies have cited tariffs as reasons for future US investments. For example, Nokia justifies its €3,39 billion investment in the U.S. by citing tariffs. Nokia had forecast a reduction of operating profit as a result of US tariffs, estimated at €20 million-€30 million shaved off per quarter. Likewise, ASM manufacturing announced as early April 2025 that it would shift production to US factories to escape tariffs. In downstream industries, German carmakers have largely chosen localization strategies.

In complement to trade policy, the Trump administration is wielding strategic pressure to align allies’ on Washington priorities. The Department of State describes Pax Silica as its "flagship effort on AI and supply chain security, advancing new economic security consensus among allies and trusted partners". Moving beyond domestic incentives like the CHIPS Act, the initiative secures upstream raw materials, shifts midstream fabrication and advanced packaging to allied jurisdictions, and integrates the full "silicon stack" from mine to AI deployment within a trusted network. By coordinating with key partners such as Japan, South Korea, Singapore, the Netherlands, the UAE, Qatar, and India, Pax Silica ensures access to critical talent, capital, technology and manufacturing nodes while excluding adversaries from cutting-edge technologies through aligned export controls. 

An even more striking example of immediate, tangible results has been the Trump administration’s forceful emphasis on semiconductor manufacturing in its renegotiation of trade and investment relations with Taiwan, South Korea, and Japan. The series of unprecedented "investment-for-access" agreements with the three Northeast Asian technological powers commits them on paper to $1.4 trillion of investment by 2030 to onshore semiconductor production and related infrastructure in the United States. These deals are structured to reshore critical supply chains while granting participating countries relief from U.S. reciprocal tariffs, effectively tying preferential trade access to domestic investment. Taiwan is committing $250 billion in corporate investment and $250 billion in government-backed credit guarantees to expand TSMC’s Arizona footprint, establish industrial clusters, and develop an AI-focused chip ecosystem, with tariff exemptions proportional to U.S. capacity built. Japan has signed on a $550 billion Strategic Industrial Fund, part of which, "at President Trump’s direction", will finance projects in semiconductor manufacturing and research. The first batch of three projects recently concluded includes a $600 million synthetic diamonds facility in Georgia, which is essential for semiconductor manufacturing. South Korea’s $350 billion deal has an explicit focus on shipbuilding investment, but a list of strategic projects is currently in negotiation and should lead to additional Korean investment in memory, advanced packaging, and integrated AI semiconductor clusters. At the same time, US firm Micron has announced in 2025 a $200 billion investment, with $6.4 billion in direct grants and billions more in tax credits, to break the Korean duopoly (Samsung and SK Hynix) on high-bandwidth memory chips, essential to AI Chips manufacturing. 

Similarly, the industrial policy revival focuses on overcoming the main area of European superiority, advanced lithography. In early December 2025, the Department of Commerce announced a non-binding preliminary Letter of Intention to offer up to $150 million in CHIPS Act incentives to xLight Inc., a company that produces alternative light sources for lithography (including EUV) scanners. Similarly, Substrate, an American startup backed by Peter Thiel’s fund, is attempting to industrialize X-Ray lithography to challenge both ASML and TSMC business models.

Implications as Europe redesigns semiconductor policies

Undersecretary of State Jacob Hellberg, the architect of Pax Silica, has characterized the initiative as ushering in a "new economic security consensus" among aligned partners to construct the "AI ecosystem of tomorrow." While China lacks the coalition of trusted partners that the U.S. can rely on, it nonetheless clearly embraces an economic-security-driven approach in shaping and implementing its semiconductor policies.

The EU is also embracing an economic security framework as it redesigns its semiconductor policies. In this context, the review of current semiconductor policies in the US and China resonates with four key debates currently ongoing across Europe, as the European Commission prepares China Act 2.0, but also in the context of the Industrial Accelerator Act. 

First, as of early 2026, the European Union is undergoing a historic shift toward a form of "European preference", although significant resistance persists within Europe. Under such a framework, access to public funding and major contracts would become conditional on a demonstrable share of value creation taking place within the EU. Implementation would likely rely on three main levers: local content requirements in key industries; resilience criteria allowing authorities to bypass suppliers that create excessive dependencies; and sustainability standards that indirectly favor European production through high environmental thresholds.

While the precise design of these instruments must be approached carefully in the semiconductor sector, the debate has gained momentum with the European Commission’s proposal for an Industrial Accelerator Act, which establishes a comparable framework for clean-technology industrial capacity. For policymakers seeking to persuade the public, the explicitly nationalistic semiconductor policies pursued by the United States and China provide perhaps the clearest and most compelling argument for building political support across the continent for European preference. In a debate that often becomes excessively inward-looking, stepping back to adopt a helicopter view of broader strategic trends can be particularly persuasive.