Chips and Rare Metals: The Case for European Strategic Autonomy and Technology Supremacy

Written by | Thursday, July 14th, 2022

Europe seems to be waking up from a strategic nap it has been having since 1989. The pandemic interrupted supply chains and made the continent more aware of its dependence on Asian manufacturing, and just-in-time logistics. Then the barbaric aggression against Ukraine exposed its addiction to Russian energy resources, previously brought up only by a handful of Central European countries. Yanked by these abrupt changes, Europe is finally drafting a strategy in pursuit of real autonomy rather than just empty promises.

France, especially under the presidency of Emmanuel Macron (and thanks to the actions of Donald Trump), has been successfully promoting the postulate of the “strategic autonomy” of Europe. But the ambiguities of such a definition caused considerable controversies. Could this new European defense project lay the foundation for an alternative to NATO? Does it solve the crisis of free trade and in the slowdown of globalization? In both cases, these new policies represent a clear response to the rising threat of China and dependency on Russia.

FILLING SUPPLY CHAIN DISRUPTIONS —- With the proposed “Chips Act”, Brussels hopes to mobilize 43 billion euros in public and private money to finance some decoupling of Asian imports of microchips. This funding, coming in the form of subsidies and tax breaks, will develop chip technologies and their local production. Europe cannot lag behind in the global race for microprocessors. If we want the digital and green transformation to become a reality in the EU, we must do everything we can to keep our industry operating without the disruption of third-country dependency and global shortages.

Currently, about half of all microprocessors in the world and up to 95% of the most advanced ones come from Taiwan, despite EU companies dominating the market of machines for their production. This shows the complexity of current global supply chains. Chip shortages, which hit, among others, the car industry in Germany, came as a result of the revived global demand after the pandemic. A possible war threat from China, or even “only” an export blockade of Taiwan, would now represent a tragedy for European industry. Hence the need to increase production capacity. Building a modern, large chip factory takes several years and consumes billions of euros, so the plan cannot be considered a quick fix to the current problems.

The European Commission laid down guidelines for tracking bottlenecks in chip supplies and for an immediate crisis response to their shortages, even considering the possibility of blocking exports. The only fear is that this might lead to protectionism in some cases and illegal state aid. Currently, EU countries are strongly seeking investments from Intel, which has committed to injecting $36 billion in the production of chips in the continent. The company said it will build a new “mega factory” in Germany as part of this commitment, partly subsidizing the construction with public funding. It also pledged to create a new Research & Development and design hub in France, setting up R&D, manufacturing and foundry services in Ireland, Italy, Poland, and Spain. The Netherlands is also trying to grab a slice of this funding.

DEALING WITH THE SCARCITY OF RARE METALS —- With the implementation of the European green deal and the proposal of the RePowerEU plan, the Union has started a transition towards a more sustainable and autonomous energy mix. However, some new challenges arose along the way. Russian aggression against Ukraine has threatened the imports of rare earth metals to the EU from Russia, Belarus and Ukraine. Rare earth metals like lithium, cobalt and nickel, are key components in lithium-ion batteries. Nickel is primarily sourced from Asia, while around two-thirds of cobalt is mined in the Democratic Republic of Congo. More than 90% of rare earth magnets are currently produced in China. This high production concentration in combination with rising global political tensions and a growing Chinese domestic market demand – particularly driven by a growth in electric mobility – results in a high supply risk for these materials.

The EU drafted a contingency plan relying on battery recycling. However, wide scale reuse cannot be considered a feasible option until enough end-of-life batteries are available in the system, so mining large quantities of virgin materials to meet projected demand remains a necessity for now. Under the proposed EU battery regulation, the use of minimum levels of recycled content for cobalt, lead, lithium, and nickel in battery manufacturing will in fact not become mandatory until 2030.

The war has pushed the EU to increase defense spending and investing to reduce strategic dependencies on foreign goods. Together with the pandemic, it has accelerated Europe’s path towards strategic autonomy, which has been a long-standing aim of many countries. Now the Union should identify clear and reliable targets, and stick on the path to achieve them, no matter what happens.

‘Chips and Rare Metals: the Case for European Strategic Autonomy and Technology Supremacy’ — Commentary by Piotr Arak — Italian Institute for International Political Studies / ISPI.

The Commentary can be downloaded here

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