Berlin and Brussels are subsidizing the construction of new chip factories in Germany with billions. Is the plan a gigantic waste of tax money? Or an indispensable survival strategy in the event of a conflict with China?
The US company Intel was originally supposed to receive a whopping 6.8 billion euros from the state treasury for the construction of its chip factory in Magdeburg. Because of increased construction and energy costs, he would now like to have almost 10 billion euros.
17 billion euros investment, around 10,000 jobs: The planned giga chip factory on the field in the Eulenberg industrial area is the largest foreign investment in Germany after the Second World War. And at the same time much more than just an economic decision: it is the backbone of a political master plan to defend Germany’s and Europe’s sovereignty in the digital age – and to prepare for a potential conflict with China over Taiwan.
In order to bring plants like the one in Magdeburg to Europe, the EU launched the European Chips Act – a package of subsidies totaling 43 billion euros. Brussels wants to double Europe’s production capacity for chips from today’s ten to twenty percent of the world market share by 2030. Not only in Magdeburg, but also in Dresden and Saarland, new “Fabs”, as the semiconductor plants are called in the industry, are to be built. With plenty of money from the state coffers.
The US chip manufacturer Wolfspeed wants to invest around 2.5 billion euros in a semiconductor factory in Ensdorf together with the automotive supplier ZF, and expects public subsidies of 20 to 25 percent of the investment sum. At Infineon, the groundbreaking ceremony for the fourth plant in the Saxon capital took place a few days ago. And the Taiwanese chip giant Taiwan Semiconductor Manufacturing Corporation (TSMC) may also soon want to set up a new production facility on the Elbe – it would be the first TSMC chip factory in Europe at all. Negotiations on the amount of the subsidies are currently underway. A decision should be made in August at the earliest.
The tax-financed settlement of chip factories is to a certain extent the lesson learned from the global supply bottlenecks in the corona pandemic and Vladimir Putin’s attack on Ukraine. Because Germany’s dependence on microchips from Taiwan is much greater than on gas from Russia. But the price of overcoming them is high
One million euros in tax money for every job
Smartphones, cars, computers – there is hardly an industry that is not dependent on chips from Taiwan. According to a study by the US semiconductor industry association SIA, 92 percent of the world’s production capacity for the most powerful chips (below ten nanometers) is located there. And even more precisely at a company: TSMC. For example, the giant is the exclusive supplier of the chips in Apple’s iPhones and iMacs. The company is to the semiconductor industry what JPMorgan is to the global financial industry: globally systemically important. When the lines stop at TSMC in the Hsinchu Technology Park, about an hour’s drive west of the Taiwanese capital Taipei, the whole world immediately feels it.
The problem is that this Taiwanese Silicon Valley is only 15 kilometers as the crow flies from mainland China. And Beijing sees the republic as a renegade province that they absolutely want to unite with the rest of the giant empire. A Chinese invasion or even a permanent blockade of the island by the People’s Republic would immediately cut off Germany and the rest of the world from the supply of high-performance chips – with fatal consequences.
Exactly this has happened before in a weakened form: in 2021, during the corona pandemic, Volkswagen, BMW and Co. had to reduce their production as a result of a global chip jam. “We lost 1 to 1.5 percent of our economic output in 2021 due to a lack of semiconductors – about 40 billion euros,” the “FT” recently quoted a senior German official as saying.
In view of these orders of magnitude, the costs of the chip factories seem justifiable. Still, they are enormous. And it is questionable whether they will really noticeably reduce Germany’s dependency. The Infineon factory in Dresden costs about 5 billion euros – a billion of which comes from the state. Around a thousand new jobs are to be created. The Treasury subsidizes each job with one million euros. For many critics, this high price is not worth the potential benefit: “My concern is that we will spend a lot of money just to increase security of supply a bit. If everything works out, we will still import 80 percent,” said Ifo boss Clemens Fuest at the groundbreaking ceremony in the Infineon plant on ARD.
Race from Arizona to Magdeburg
The fact that the prospects for the chip industry are very good in the medium term, even without billions in taxes, speaks in favor of the expensive fabs in Central Germany. The global demand for chips is likely to explode in the coming years as a result of the energy transition. Because not only smartphones, PCs and televisions need chips – but also more and more wind turbines, on-board computers, assistance systems and electric cars.
Demand from the automotive industry alone will triple by 2030. And the chips from the planned factories are exactly those that German industry needs: According to insiders, TSMC is planning a factory in Dresden that will produce semiconductors with a size of 22 to 28 nanometers, as used in the automotive industry.
In addition, Brussels and Berlin are only reacting to the subsidy programs elsewhere: A veritable subsidy race has broken out worldwide in the chip industry. France is funding the construction of a chip factory by STMicro and GlobalFoundries in Crolles in southern France with 2.9 billion euros. Overall, Paris has launched a €5.5 billion package to support the sector until 2030.
Through the Chips and Science Act, Washington is promoting the settlement of new chip factories in the USA with as much as 53 billion dollars. That’s why TSMC – unlike in Dresden – hit it off with the US government as early as 2020 and has been building its first chip factory in the USA north of Phoenix in Arizona since then. A second factory for today’s most powerful 3-nanometer chips is to follow in 2026, after which TSMC will triple its investment to $40 billion.
Beijing wants global chip dominance
However, the gigantic sums that are already flowing elsewhere are also an argument that the German tax authorities can possibly hold back. “It would probably be more efficient to simply buy cheap, subsidized chips from the USA,” criticizes Reint Gropp, head of the Leibniz Institute for Economic Research in Halle, the subsidy hype in the “FT”.
The only question is whether Germany’s partner countries would also deliver reliably in the event of a crisis and whether the capacities would be sufficient. Or whether Germany would be at a disadvantage again. It was the same during the corona pandemic: When antibiotics and paracetamol became scarce, it was not just China that restricted exports. But also India as a supposedly reliable trading partner. And in German pharmacies the shelves remained empty.
Last but not least, the German fabs are probably not just an investment to cushion the indirect dependence on China that already exists today. But to arm themselves for the coming direct dependence on Beijing, which is already threatening tomorrow. Because the Middle Kingdom itself wants to become the largest chip manufacturer in the world – with all its might. If that succeeds, Germany and Europe will depend directly on Beijing’s drip.
A possible invasion of Taiwan would only be the most direct and dangerous route. Just this week, a little-noticed incident pointed to another scenario: South Korean prosecutors accused an ex-Samsung employee of industrial espionage. The 65-year-old wanted to steal the blueprints for an entire Samsung chip factory – to build a copy of it in the northern Chinese city of Xian.