The EU and UK’s Semiconductor problem, a chance to form a ‘bespoke’ policy to ensure supply chain security.

persijndevries1
1 day ago
12 min read

By Persijn (Percy) De Vries

Image by Axel Richter (2022) here.

The European Union (EU) and UK are heavily dependent on Taiwanese manufactured semiconductor chips (referred to interchangeably as ‘Chips’) imports presenting a vulnerability in their supply-chain security. A future potential Taiwan Strait Crisis could jeopardise access to these Chips, bringing wide-ranging disruptive effects to everyday life and economic activity.

Overarching geopolitical trends such as increased greater power competition between the U.S. and China has shifted the price of doing international trade literally import tariffs and security considerations.

Positioned between these are the EU’s and UK’s access to a core component to electrical goods and equipment that form the backbone of modern daily life and economic activity. While well positioned regarding research, development, and in front of supply-chain, they are equally exposed. Presented with a potential threat to their security, the discussions surrounding the review process of the EU- UK Trade and Cooperation Agreement (TCA) in 2026 present an opportunity to comprehensively address this gap.

This briefing sets out the reliance, the connecting vulnerabilities connected to it, and policy opportunity available to the EU and UK in securing a longer-term semiconductor supply chain.

Taiwan’s vulnerability

Overarching any conversation about the logistics of securing Chips supply chains is the threat of Chinese invasion of Taiwan. Although subject to debate among analysts as to its likelihood or date of occurrence, Xi Jinping has ordered PLA’s forces to be ready in the near future to annex Taiwan to the mainland[1].

Is such an event a realistic possibility? On balance the increased military hardware development, simulated exercises of naval blockades and aerial incursions into Taiwan’s ADIZ suggests that preparations are being made[2]. Military hardware development equally support this notion, as seen with the production of large-scale ‘landing barges’[3].

While the successful military annexation of Taiwan isn’t a foregone conclusion[4], a blockade of the main island or ‘grey zone’ tactics are cited as potential alternatives to amphibious assault[5]. Its geography presents a challenge to an invading force, allowing Taiwan the chance for a strong defensive operation[6]. Likewise increased investment in deterrence by Taiwan to raises that collective potential cost on an invading force.

Would international pressure deter an annexation?

What of international pressure on China in the event of an attack? Couldn’t that act as a deterrence against it? Particularly noting Taiwan’s ‘silicon shield’[7]? Absent a working rules-based international system that could persuade states to implement sanctions or invoke a collective military response, this deterrent has its limitations. Recent shifts in geopolitical alliances as demonstrated by the Indian leader’s attendance at a SCO[8], combined with not high uptake of sanctions against Russia outside the West, implies states may be willing to look the other way.

Does U.S. ambiguity permit an increased risk an increased chance this will happen?

Further wouldn’t the U.S. intervene to protect Taiwan? The U.S. may be required to ensure that Taiwan can have the ability at a minimum defend itself[9], however it doesn’t owe Taiwan a treaty obligation to defend it unlike is the case for NATO members, the Philippines, South Korea, or Japan[10]. That combined with the Trump administration’s more ambiguous stances regarding Taiwan’s defence compared to the Biden administration’s ‘assurance’[11], forebodes a lack of clarity regarding its status in an attempted takeover. Further misalignment among U.S. allies in the region as demonstrated in the QUAD’s internal disagreement on deterring PRC activity in the South China Sea[12], and lacking formal obligations for Japan and South Korea for Taiwan’s defence[13] create further uncertainty on the U.S.’ position and leadership in this regard.

The importance of Taiwanese Chip(s)

Image by Timo Volz, here.

Official and estimated figures vary, around 50 – 60% of the world’s semiconductor chips are manufactured in Taiwan by the Taiwan Semiconductor Manufacturing Corporation (TSMC)[14]. That share increases to 90% of all ‘advanced’ Chips[15]. While the top-end of the Chips production market is populated heavily by South Korean, American, Chinese, and Japanese manufacturers, it’s Taiwan’s that maintain the highest degree of impact[16]. Particularly as its sector caters to a wide variety of industries with decades of experience and existing infrastructure.

No viable alternatives (yet)

United States

The Trump administration as part of an intent to restore American domestic-based manufacturing secured an extra $100bn investment by TSMC to open a production plant in Arizona[17], following threats to levy 100% import tariffs on Taiwanese Chips[18].

Even where efforts are undertaken to ‘diversify’ the location of the production supply chain, Taiwan’s dominance remains. As demonstrated by the recent project set up by American company Nvidia. While new production plants will come online in Arizona and elsewhere in the U.S., the final part of the production process will still take place at TSMC’s foundry in Taiwan[19]. Likewise TSMC’s investment has a limit, as Taiwan’s government has indicated it won’t let the most advanced stages of production move to the U.S.[20]. American Chips therefore won’t be an immediate viable alternative to completely ‘de-risk’ the European supply-chain.

European countries

European and British semiconductor strengths are based in the research and development, and intellectual property of Chips design rather than their manufacture. Organisations such as Arm and ASML form an integral part of the front-part of the supply chain in producing design and machines that produce these respectively. Arm owns the IP for the Chips in 99% of the world’s smartphones[21], and ASML produces most lithography machines that used to manufacture advanced Chips[22]. However production and raw materials are sourced from various places around the world. Point being it’s reliant on a complicated supply chain[23]. Therefore infrastructure to replicate the production process to replace Taiwanese and or East Asian import sources, would therefore require a high degree of capital expenditure at minimum.

This combination of factors leaves European states exposed to global events when it comes to securing components for everyday electronics and technology. As recent proposed Chinese export restrictions on several rare earth minerals demonstrates[24], these states are caught in a dependency relationship being unable to guarantee core components. While these mainly relate to minerals that are dual-use (have potential military use)[25], further recorded Chinese control of rare earths provides it with potential leverage globally. The U.S. may have started undertaking proactive efforts to de-risk its supply chain, yet Europe remains ‘out in the cold’ without a plan so far.

South Korea and Japan (as a source) in the event of Straits crisis

The EU and UK could shop elsewhere such as in South Korea or Japan for Chips. However a takeover and or conflict across the Taiwan Strait would additionally likely block-off and severely disrupt vital shipping routes from these. A significant portion world’s commercial shipping traffic and most of Japanese and South Korean traffic passes through the Strait, which a conflict or blockade would likely disrupt[26]. Consequently ships from Japan and South Korea would likely have to take longer routes to avoid it to get to European markets, adding significant delivery time and costs.

The effects of a shortage or cut-off in supply

The shortage during Covid-19 was a ‘trial run’ of what could occur in the event of a supply cut-off. A sudden increased demand in mainly home-based electronic goods particularly during lockdowns, led to a demand that manufacturers and suppliers weren’t equipped to meet. Resulting increased wait times for delivery of new goods dependent on Chips spiked to 15 weeks in January 2021[27], with commodity prices rising in conjunction. Being core components in many electronic goods from computers to cars, manufacturing and delivery of these goods were affected as well. Chinese EV-company Nio Inc resultingly temporarily suspended production in March 2021[28].

Paired with the continued growth of the world’s semiconductor market and its importance, a future disruption for whatever reason could have further reaching effects.

The suggested policy opportunity and ‘fix’

Image by Rocco Dipoppa here.

The TCA review (context)

Following the Windsor framework and re-pivot toward friendlier relations with the EU by the Starmer government, the 2026 review could be a convenient excuse for a starting point that can lead to a comprehensive agreement. Whilst the review doesn’t serve as a renegotiation of trade terms, it could facilitate as a platform to concentrate minds and ignite discussions around further cooperation[29]. Moreover on both sides of the Channel governments are interested in closer relations[30], particularly informed by security concerns arising out the war in Ukraine and overarching looming greater power competition. In this context closer cooperation to further safe proof the supply chain is prudent.

Why? As it’s already happening in bilateral and mini-lateral formats. The 2025 Kensington Treaty between the UK and Germany affirms many commitments among them security cooperation, protecting democracy, and easing commercial trade eventually[31]. The Nine-party EU states 2025 [not related to the EU] agreement sets out a commitment to building a European-wide only project on semiconductors[32]. The will is demonstrably there, what’s required is some political ‘ingenuity’.

The plan

A possible solution? A ‘near-shoring’ plan.

Use the negotiations as a platform on the side create a Pan-European Chip plan in addition to the EU-UK trading relationship. Start small and concentrate investment into project mergers between R&D institutions (universities and private-sector entities) to link and form collective supply-chains. Using that built-up capacity aim to either set-up production geographically closer to home and or eventually build and expand foundries within Europe. That could additionally extend to collective purchasing power via a common fund of rare earth minerals required for this ‘new’ manufacturing sector. Where diplomatic bargaining is concerned for these minerals for instance with China in future, collective agreement and representation could bolster European stances than individual representation (the main motivator for collective EU External Action). These could also form part of a post-war restoration initiative for Ukraine.

Near-shoring production could also either in addition or alternatively take place in non-European state closer to the continent, if this is to be attained in intermediate-term. For example as mentioned above buying completed Chips from American foundries. High fuel, labour, and rules on planning and development in most European countries could potentially deter large-scale construction projects required to build this industry.

Could it work?

This plan would have to rely on some form of public-private funding commitments, which could overcome the strained fiscal conditions European states experience. Restricted fiscal conditions such as those present in the UK and France might challenge the funding for this idea[33]; the UK is unlikely to apportion more than the £1bn currently allocated under the National Semiconductor Strategy[34]. However support doesn’t need come in the form of conventional public spending, as privately sourced investment incentivised by beneficial tax regimes could probably ensure that it can be paid for (acting in effect as a type of ‘subsidy’). Public-private partnerships are often trickier to enact than in theory as demonstrated by overrun public infrastructure projects across the continent[35]. Yet where critical resources are concerned, as demonstrated by the Netherlands in its Nexperia takeover[36], governments can be willing to exact ‘extraordinary’ measures.

While rising Eurosceptic politics could threaten its long-term viability, it has the advantage of being potentially becoming predominantly ‘apolitical’ due to its securitised aspect. Inevitably all aspects of the relationship are overarched by the trading relationship. While security has taken precedent in recent years politics of EU-UK relations remains, such as demonstrated by a proposed limitation by France on the UK’s contribution to European-wide EU headed defence project[37]. In the UK the Labour party until recent reluctance to challenge the post-Brexit consensus and to not support any plan that could be construed as Brexit reproachment, likewise makes this plan difficult to realise. Security is similarly an issue that as when it comes to Ukraine, not all 27 EU members are unified[38]. Add in the factor that negotiations could also be overshadowed or become dependent on another issue such as food standards or fisheries. However ‘reset’ cooperation on defence, easing trade, and the UK Chancellor’s critique of Brexit as cause of UK’s economic malaise, indicates room for potential continued ‘warmer’ relations with security at its core [39].

Although overall this brief argues that the review period is the ideal ‘venue’ to address this topic, it merely acts as an excuse to build to an agreement outside the structure of the EU where possible, as defence cooperation outside of NATO demonstrates[40].

Could however the potential rise of Eurosceptic and or far-right parties across the continent undermine such an eventual pact? The electoral window for opportunity for current governments is admittedly small, yet it does still offer enough time to reach agreement and could deliver action to boost some stagnating economies. The gain for European countries is a potential economic gain from moving production to the continent, with spill-over effect benefitting not just those immediately employed but also their adjacent sectors. If all else fails to convince political leaders that this plan is worthwhile, then these factors are worth noting. Aside from that EU, UK, and German elections don’t need to be held before 2029, France and Poland’s before 2027; a few years of political manoeuvre room therefore exists.

The suggestion of buying American Chips in addition to this mooted strategy is also a viable alternative, which could bolster political relations between Europe and the current U.S. administration. It’ll take some time for the U.S. to build up manufacturing capacity domestically to supplant dependency on Taiwan[41], by which the current administration and its ‘America-First’ ideology to trade and development may have left office or have waned in political influence. Mid-term and 2028 elections pending. However a strong current of protectionist politics is likely to outlive the Trump administration, as evident in strands of the Democratic party[42]. The Biden administration’s IRA and Chips Act being exemplary of efforts largely informed by the aim to on-shore manufacturing capacity in light of competition with China. Cementing a long-term ‘customer’ relationship could ‘endear’ Europeans again where their reputations had been fraying such as in defence.

Other limitations

Another potential thorn could arise out of limited inward investment in these projects receive, as the U.S. has experienced. Any form of European production would likely require TSMC or U.S. entities involvement due to the lack of domestic-based manufacturing capacity. TSMC (with its institutional knowledge and funds) will likely want to preserve its Taiwan-based manufacturing as that would represent the most efficient cost option, instead replacing that elsewhere. However a plan that can incentivise investment, such as subsidies in various forms, could attract that required capital to Europe and spending from within. It remains the resolve of European leaders, conscious of Draghi’s 2024 report points on EU’s lacking in attracting investment[43], to address these. This could at the very least begin to establish a European or closer-to-Europe manufacturing base.

Overview

Potentially unworkable? Absolutely. While there are plenty of reasons why a hypothetical plan couldn’t work, there are plenty why the EU and the UK shouldn't miss the chance to do so. Europe is dependent on imports whose supply can’t be guaranteed as the source (Taiwan) is either under potential existential threat, core components as in the case of rare earths are restricted, or domestic manufacturing capacity isn’t adequate. This trifecta of factors potentially undermines the ability for these countries (and their respective Chips importers) to guarantee supply of core technological components. The legal provisions of the TCA and political factors may make a complete 'revision' of the trading relationship unlikely, however a (possibly) short diplomatic and political window exists on both sides of the Channel favouring cooperation. Likewise this proposal would take some time to realise from conception, outline, to execution, and wouldn’t address the supply-chain crises in the event of cut-off of Taiwan in the short term. Therefore governments across the Channel should use the 2026 review as an excuse to formulate this 'plan', as one that sets out a longer-term strategic vision to secure their Chips supply chain.

[1] BBC News (Aug 2025): https://www.bbc.com/news/articles/cp94v42gmg9o

[2] Reuters (Feb 2025): https://www.reuters.com/world/china/taiwan-flags-chinas-shooting-drills-off-southwest-coast-2025-02-26/; The Diplomat (Dec 2024): https://thediplomat.com/2024/12/the-overlooked-trend-in-chinas-military-violations-of-taiwans-adiz/

[3] The Guardian (Mar 2025): https://www.theguardian.com/world/2025/mar/20/china-landing-barges-shuqiao-ships-what-does-this-mean-for-taiwan ; The Diplomat (April 2025): https://thediplomat.com/2025/04/recent-pla-exercises-revealed-chinas-operational-plan-for-a-taiwan-strait-conflict/

[4] Council on Foreign Relations (Jul 2024): https://www.cfr.org/article/why-china-would-struggle-invade-taiwan;

[5] Atlantic Council (Oct 2025): https://www.atlanticcouncil.org/in-depth-research-reports/report/what-taiwan-can-learn-from-chinas-gray-zone-actions-against-the-philippines/

[6] BBC News (Jul 2025): https://www.bbc.com/news/articles/cly21zrnk79o

[7] Taiwan’s prominent status as a manufacturer of advanced semiconductor Chips, which exceeds closest competitors, itself acts a type of ‘deterrent’ against invasion. See more for an explanation.

[8] Chatham House (Sept 2025): https://www.chathamhouse.org/2025/09/it-may-take-generation-stable-new-world-order-emerge

[9] Council on Foreign Relations (Jun 2023): https://www.cfr.org/task-force-report/us-taiwan-relations-in-a-new-era/introduction

[10] U.S. State Department (archive): https://2009-2017.state.gov/s/l/treaty/collectivedefense/ ; The Diplomat (Mar 2025): https://thediplomat.com/2025/03/the-us-security-treaties-with-japan-and-south-korea-arent-enough-to-keep-the-peace/

[11] See Trump’s statements on this topic here, here, and Hegseth’s ‘competing’ statement at a security summit in Singapore later on here for a demonstration of this ambiguity.

[12] Bradford and Emmers (2024) here and here.

[13] VUB (Sept 2024): https://csds.vub.be/publication/south-korea-and-a-taiwan-contingency/

[14] Statistica (2024): https://www.statista.com/statistics/867223/worldwide-semiconductor-foundries-by-market-share/; Worldpopulation review (2025) here; Wafer process systems here; and IT Brew (Feb 2024): https://www.itbrew.com/stories/2024/02/22/taiwan-s-semiconductor-industry-is-booming-and-china-has-noticed

[15] UK Parliament (May 2024) here.

[16] The Guardian (Jul 2024): https://www.theguardian.com/world/article/2024/jul/19/taiwan-semiconductor-industry-booming

[17] The Guardian (Mar 2025): https://www.theguardian.com/world/2025/mar/07/taiwan-tsmc-deal-us-microchip-technology-investment

[18] Newsweek (Jan 2025): https://www.newsweek.com/donald-trump-taiwan-semiconductor-tariff-impact-china-tech-2022564; and BBC News (May 2025): https://www.bbc.co.uk/news/articles/cwywj0zgzwxo

[19] Tom’s Hardware (Oct 2025): https://www.tomshardware.com/tech-industry/semiconductors/nvidia-and-tsmc-produce-the-first-blackwell-wafer-made-in-the-u-s-chips-still-need-to-be-shipped

[20] The Guardian (Mar 2025): https://www.theguardian.com/business/2025/mar/04/taiwan-trump-semiconductor-deal-tsmc

[21] CNBC (Nov 2023): https://www.cnbc.com/2023/11/09/how-arm-gained-chip-dominance-with-apple-nvidia-amazon-and-qualcomm.html and Forbes (Feb 2024) here.

[22] CNBC (Mar 2022): https://www.cnbc.com/2022/03/23/inside-asml-the-company-advanced-chipmakers-use-for-euv-lithography.html

[23] Rabobank (June 2023): https://www.rabobank.com/knowledge/d011371771-mapping-global-supply-chains-the-case-of-semiconductors s