President Trump’s administration is reportedly ready to impose wide-ranging tariffs on semiconductors. Not just China or finished foreign chips are targeted. Potential so-called component tariffs would add up the value of foreign-made chips inside a device and tariff the finished device.
Put aside the question of whether such a complex scheme is practical (serious analysts have doubts), tariffs could hurt Europe, reducing sales of its own cutting-edge chips and slowing chip investments on the continent. The best European response would not be to counterattack with its own chip subsidies. It would be to partner with China, and if needed, retaliate with taxes on a broad range of US digital products.
Let’s look first at the potential direct impact. European chip exports to the US will suffer little. Europe only accounts for 8% of global chip production, and most of that is destined for the European automotive industry rather than consumer electronics assembled in Asia.
Europe’s real strength – and vulnerability — is producing the machines essential to making cutting edge chips. The leading Dutch lithography equipment manufacturer ASML will suffer. Although the company plans to shift the “lion’s share” of tariff costs to US customers, it already predicts slowing orders due to uncertainty about the impact of a trade war. ASML customers, including Intel, TSMC, and Samsung are postponing equipment purchases due to overcapacity in non-AI chips.
Another affected European strength is chip design. Reporting its fourth-quarter results, British chip designer Arm warned that uncertainty around US tariff policies made it unable to give guidance for annual revenue, with its main customers such as Nvidia and Apple facing shocks to their supply chain.
Reciprocal European tariffs on US-manufactured chips and equipment make little sense. Europeans already produce their own chipmaking equipment, or use Nikon of Japan, and consume chips mostly made in Asia.
Before looking at solutions, what problems, if any, do the expected tariffs create for Europe? Apart from ASML, US and Asian suppliers could rush to invest in the US to get inside the tariff wall — potentially reducing semiconductor investment in Europe.
But is this really a problem to be solved, or more of an opportunity to be exploited? Europe’s Chip Act aims to boost production to 20% of global market share. That’s misguided — so maybe this is an opportunity to focus on more realistic goals.
Since Asian semiconductor capacity is likely to face lower demand from the US due to tariffs, this could mean overcapacity and lower prices, and hence an opportunity for the European electronics industry to take advantage and invest in local production. Tariffs are likely to make the US less competitive by isolating it from global supply chains — Europe, including the UK, can fill the vacuum with key innovations, especially in design, compound and low-power chips where it is strong.
Instead of making China an enemy, Europe and the UK should leverage the huge Chinese production capacity in electronics and artificial intelligence innovations to its advantage. European consumers and industry will benefit while their US counterparts will suffer.
If Europe wants to consider counter tariffs as a political gesture and/or revenue-raising measure, asymmetric targets will yield better results than singling out the US semiconductor industry. Facebook and Google’s data collection on European and British consumers remains largely untaxed. Since no comparable European services exist that the Trump administration can retaliate against, taxes on US tech could be a revenue-raising response.
If Facebook and Google choose to pass these taxes onto their customers, that will be their loss, and China’s TikTok’s gain. Let’s hope that these risks make the Trump administration pull back from counterproductive chip tariffs.
Christopher Cytera CEng MIET is a Non-resident senior fellow with the Tech Policy Program at the Center for European Policy Analysis and a technology business executive with over 30 years’ experience in semiconductors, electronics, communications, video, and imaging.
Christopher Cytera CEng MIET is a Non-resident senior fellow with the Tech Policy Program at the Center for European Policy Analysis and a technology business executive with over 30 years’ experience in semiconductors, electronics, communications, video, and imaging.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
Tech 2030
A Roadmap for Europe-US Tech Cooperation
