The Missing Strategy in Europe’s Reindustrialization: Lessons from Japan, Korea, and Taiwan

State of Play

Amid geopolitical upheaval and growing supply chain fragmentation, the European Union (EU) is rethinking its global role through a renewed focus on industrial policy. The rules-based trading system that underpinned Europe’s prosperity is increasingly giving way to economic coercion, industrial subsidies, and the weaponization of trade and technology. In this new environment, EU member states have recognized the need for fundamental change to make Europe competitive again. At the same time, a deteriorating security environment and a rupture in transatlantic ties have made these efforts more challenging. The EU’s overriding objective is therefore to strengthen its strategic autonomy by enhancing its ability to remain both prosperous and secure through greater competitiveness, the protection of critical industries, and the diversification of trusted partnerships, while remaining committed to an open global economy.

China’s pursuit of technological self-sufficiency through state-led industrial policy has challenged the EU’s ambition to maintain technological leadership and its efforts to scale up in strategically important industries. At the same time, the deterioration of EU-China relations following Beijing’s support for Russia’s full-scale invasion of Ukraine in 2022 has amplified the EU’s urgency to step up and invest in its strategic autonomy. Meanwhile, uncertainty surrounding transatlantic relations, combined with Europe’s technological dependence on both the U.S. and China, has exposed the EU to growing geopolitical risks. Its digital transition depends on materials it does not control, namely critical raw materials (CRM), which are indispensable for semiconductors—and the equipment used to manufacture them. China’s near-monopoly over the extraction, processing, and refining of many of these materials leaves European industries highly exposed to supply disruptions. China, for example, produces about 95 percent of the world’s rare earths and has a central position in refining them.

CRM are indispensable for the production of semiconductors, which underpin every modern technology and strategic defense system, hence their strategic value. Increased demand for semiconductors will require greater quantities and new varieties of minerals. In other words, the race will only get tougher. At the same time, semiconductor supply chains remain highly complex: a single chip typically passes through three to six production facilities across multiple locations before completion, making supply chains difficult to monitor and vulnerable to disruption. In recent years, with the U.S.-China rivalry widening from tariffs to semiconductors, CRM, and industrial technology, Beijing has leveraged export controls as a central geopolitical instrument of national security. In response to U.S. export controls on advanced technology exports, China has restricted exports of gallium, germanium, and graphite, which are vital to high-performance chips. China therefore plays a pivotal role in global supply chains, also supplying 70 percent of Europe’s rare earth imports.

Its critical dependence on external suppliers has challenged Europe’s economic security and industrial resilience, limiting its ability to act autonomously in strategic sectors. Ensuring a secure supply of CRMs for the semiconductor industry is therefore essential not only for maintaining Europe’s industrial competitiveness, but also for strengthening its defense capabilities and national security. At present, Europe accounts for just under 10 percent of global semiconductor production and remains highly dependent on chip imports from the Indo-Pacific and America. European production and demand focus on legacy semiconductors (above 28 nm nodes), particularly analog, discrete, and micro-component devices serving its industrial sectors. Advanced logic and memory chips are primarily produced in Asia for electronics assembly. To reduce these strategic dependencies, the EU is determined to revitalize its chip industry and close the gap with world leaders.

In this regard, Europe benefits from significant innovation capabilities. Through the Dutch company ASML, it has a near-monopoly in mastering the manufacturing of extreme ultraviolet (EUV) advanced lithography equipment, which is essential for semiconductor production. In 2022, the EU launched the Chips Act to stimulate production and has also provided subsidies under the Important Projects of Common European Interest (IPCEI) scheme. The question should, however, not be whether it has the funds to build new factories, but whether it can build a resilient, interconnected industry designed to withstand pressure and disruptions. In a fragmented geopolitical environment dominated by global actors who are far ahead in the competition, catching up is no small task for Europe. Yet, Europe is not alone in confronting these vulnerabilities. Its Indo-Pacific partners—Japan, Korea, and Taiwan—are deeply integrated into regional and global supply chains, particularly through their economic ties with China and their interdependence with one another, with varying levels of market complementarity and competition. They each play significant roles in the semiconductor value chain and hold substantial shares in the global market, while China is the world’s largest chip market.