Germany’s new chip factories: a bet on the future or waste of money?3 min read
Germany is seeking to establish itself as a major semiconductor production force in order to safeguard technological sovereignty and prepare the way for future markets dependent on semiconductor applications. The country plans to spend up to EUR 50 billion to secure Germany’s position as a major semiconductor production location. But is this a wise investment or a waste of money? This article will examine the pros and cons of the German government’s plan to subsidize the country’s semiconductor industry, and whether it makes economic sense.
The pros of subsidizing semiconductor industry
The proponents of the plan argue that subsidizing semiconductor industry is necessary for several reasons:
- To reduce dependence on foreign suppliers: The global semiconductor shortage has exposed the vulnerability of many industries that rely on chips, such as automotive, electronics, telecommunications, and healthcare. Germany imports about 90% of its semiconductors, mainly from Asia and the US. By boosting domestic production, Germany hopes to increase its resilience and security of supply in times of crisis.
- To foster innovation and competitiveness: Semiconductors are essential for enabling digitalization, artificial intelligence, green energy, and other key technologies of the future. By investing in semiconductor industry, Germany aims to enhance its technological capabilities and create new value chains and markets. The plan also seeks to attract foreign investment and talent, such as Intel’s EUR 17 billion project in Magdeburg, which is the largest-ever foreign direct business investment in Europe.
- To support strategic sectors and create jobs: Semiconductors are vital for many industries that are important for Germany’s economy, such as automotive, engineering, chemicals, and aerospace. By subsidizing semiconductor industry, Germany hopes to support these sectors and maintain their global competitiveness. The plan also expects to create thousands of new jobs and stimulate economic growth.
The cons of subsidizing semiconductor industry
The opponents of the plan argue that subsidizing semiconductor industry is not justified for several reasons:
- To avoid market distortion and unfair competition: Subsidizing semiconductor industry could create an artificial advantage for German producers over their rivals in other countries, especially in Europe. This could lead to market distortion and unfair competition, as well as legal challenges from the European Commission or other countries. Subsidies could also discourage innovation and efficiency by shielding producers from market forces.
- To consider opportunity costs and fiscal risks: Subsidizing semiconductor industry could entail significant opportunity costs and fiscal risks for Germany. The plan could divert public funds from other priorities, such as education, health care, or infrastructure. The plan could also expose taxpayers to losses if the subsidized projects fail or become obsolete. Moreover, the plan could increase public debt and inflation at a time when Germany faces fiscal pressures from the pandemic and aging population.
- To acknowledge the limits and challenges of domestic production: Subsidizing semiconductor industry could be futile or counterproductive if Germany cannot overcome the limits and challenges of domestic production. These include the high costs and complexity of building and operating chip factories, the scarcity of skilled workers and raw materials, the environmental impacts of chip manufacturing, and the fast-changing nature of semiconductor technology.
The German government’s plan to subsidize the country’s semiconductor industry is a controversial and ambitious project that involves trade-offs and uncertainties. The plan could bring benefits for Germany’s economy and security, but it could also entail costs and risks for taxpayers and consumers. The plan could also have implications for Europe’s industrial policy and global competitiveness. Ultimately, the success or failure of the plan will depend on how well it balances the interests of various stakeholders and adapts to changing market conditions.