Rabo: Racing to the top (Computer Chip War Update)

The fight for strategic autonomy, and particular chip dominance, isn’t only won by subsidies.

Market comments

Although the European Union is trying to reinvent itself with its pursuit of “strategic autonomy”, no one ever said it would be easy. We certainly have been saying that this would be a challenging endeavour, seeing how Europe does not exactly have a strongstarting point when it comes to the required resources, or geopolitical clout. However, if these external weaknesses weren’t providing enough of a struggle, internal division may also throw a spanner in the works.

I’m specifically referring to the news that the German government will not increase its subsidies for a fab that Intel plans to build in the city of Magdeburg. The chip company was already due to receive €6.8 billion in subsidies for the construction of the plant, but has since increased its demand to €10 billion on higher energy and construction costs. Finance Minister Linder told the FT that he opposes such an increase, as the government seeks to consolidate the budget.That sentiment is not shared by the entire government, though. Economy Minister Habeck argues that they should match the subsidies provided by the US CHIPS and Science Act. Chancellor Scholtz is also in favour of more support for the Intel plant, as the company suggested it might then up its own investment spending too.

The German divide illustrates various problems on the road to strategic autonomy. First of all, the necessity to match the subsidies of other governments clearly indicates how the shifting geopolitical tides can lead to a ‘race to the top’, where countries –even allies–alltry to outbid each other to increase domestic production capacity.