Transatlantic Cooperation on Semiconductors and AI in 2024

The European Union and United States have embarked on ambitious policies to write new rules governing global technology throughout the past decade. Their approaches consist of a mix of domestic incentives and regulatory measures that have sometimes put the parties at odds. As partners advance their respective technology-driven economic security policies, closer cooperation will be critical. Scaling up chips production and regulating artificial intelligence (AI) will better position the transatlantic alliance to navigate this new era.

Q1: What is the status of the EU Chips Act?

A1: The European Chips Act aims to strengthen the competitiveness and resilience of the EU semiconductor industry. The regulation was adopted on July 25, 2023, and entered into force on September 21, 2023. The €43 billion ($47 billion) EU Chips Act aims to double the European Union’s global semiconductor market share from 10 percent to 20 percent by 2030, incentivizing research for smaller and faster chips, increasing advanced chip design, manufacturing, and packaging capabilities, training the workforce, and attracting new talent. The EU Chips Act is based on three pillars:

  1. The Chips for Europe Initiative to develop large-scale technological capacity and innovation will be implemented through the Chips Joint Undertaking (Chips JU) and through the Chips Fund to promote investment.
  2. A framework to secure the supply and resilience of the European chips industry through promoting public and private investments in semiconductor facilities.
  3. A coordination mechanism through the European Semiconductor Board will serve as a platform for collaboration between the European Commission, member states, and other stakeholders. The board will monitor chips value chains, identify priorities and potential disruptions, and provide crisis response support.

The European Semiconductor Board held its first meeting in November 2023. The Chips JU was also launched under the European Commission in November. The Chips JU is a public-private partnership that supports research, development, and manufacturing. As part of the Chips for Europe Initiative, it aims to establish pre-commercial, innovative pilot lines; industry state-of-the-art facilities to test, experiment, and validate semiconductor technologies; and system design concepts to support the European semiconductor ecosystem. The Chips JU will receive €1.67 billion ($1.82 billion) from the European Union and €3.3 billion ($3.6 billion) from member states during the first call. It is expected to reach a total budget of €11 billion ($12 billion) by 2030.

Member states can support this effort, and the regulation also allows for state support in cases that fall outside existing guidelines. This represents a somewhat unusual allowance for granting of state aid, which is considered justifiable if it is used to cover a “proven funding gap.” However, this allowance risks a consolidation of power among major European economies with excess fiscal capacity. Moreover, the EU Chips Act faces a $32 billion shortfall, which it can make up with “leveraged equity support” via the issuance of EU bonds. Existing budget sources and additional future revenue, as well as modifications in the Multi-Annual Financial Framework (MFF), could offer appropriate funding.

A common fiscal instrument has been one of the outstanding tasks of the European Union, especially since it retains exclusive competency on monetary policy. Managing financial instruments without fiscal capacities will limit the bloc’s action in an era where spending is at the forefront of global economic security.

Q2: What is the status of the U.S. CHIPS and Science Act?

A2: The U.S. Congress passed the CHIPS and Science Act in August 2022, mobilizing $52.7 billion to bolster the chips industry, strengthen supply chains, and reduce costs. One year after the CHIPS and Science Act was signed into law, companies have announced over $166 billion investment in manufacturing in semiconductors and electronics, and at least 50 community colleges have announced specific programming to help upgrade the skills of American workers and meet industry demand.

The Departments of Commerce, Defense, and Energy, along with the National Science Foundation, are jointly creating the National Semiconductor Technology Center (NSTC). The NSTC will focus on strengthening U.S. innovation, shortening the time it takes to bring new products to market, and cultivating a highly skilled workforce. The recipient of the first official funds was announced in December 2023. The grant has been awarded to BAE Systems Electronic Systems. BAE will receive $35 million to support military chip production. Awarding the first funds to a military-relevant entity underscores that the CHIPS Act is closely tied to both economic and national security objectives.  

Q3: How are the European Union and United States cooperating on chips implementation strategies?

A3: Both chips acts are inherently aimed at de-risking and reducing dependencies on Taiwan, which currently produces over 90 percent of advanced chips. A geopolitical crisis in the region could significantly imperil global chip supply chains. Moreover, and particularly in the United States, the prevailing sentiment is that the United States should be able to domestically produce high-tech items used in advanced military applications. Another objective of these chips acts is to secure sufficient supply for consumer products, learning from significant supply chain disruptions that shut down automobile plants during the Covid-19 pandemic. However, the United States and European Union have yet to articulate concrete goals and success metrics for these proposals. The chips team at the U.S. Department of Commerce claims that too rigid of metrics would force the U.S. government to pursue policies that may become dated in a fast-evolving environment.

The passage of chips acts on both sides of the Atlantic has led some onlookers to fear a “subsidies race” that could result in redundant and inefficient spending, harming overall competitiveness. However, $52 billion in the United States will likely prove insufficient in the long-run if the goal is to move entire supply chains in an industry as complex as space exploration.

To bolster competitiveness and reduce unhelpful redundancies (some redundancies can ease supply issues), the United States and European Union have engaged in talks through the U.S.-EU Trade and Technology Council (TTC) to improve transparency and communication in semiconductor supply chains, identify shared vulnerabilities, and strengthen respective semiconductor research and development and manufacturing ecosystems to enhance overall semiconductor supply chain resilience. Under the early warning mechanism and transparency mechanism, the parties have agreed to share future planned subsidies and defined operational steps to pursue in the event of future supply chain disruptions. However, convincing private sector actors to share sufficiently detailed information has proven difficult and will remain a hurdle in the coming months.

Q4: In addition to chips cooperation, how are the European Union and United States working together on AI governance?

A4: In December 2023, the European Union reached a provisional agreement on the EU AI Act, which was originally introduced in 2021 as the first major push to regulate AI. The legislation will follow a “risk-based approach,” labeling AI systems as minimal, high, or unacceptable risk. High-risk AI systems require risk mitigation and data transparency rules, while AI with an unacceptable risk level will be banned. Examples of banned AI include those that practice “social scoring” or the use of biometric categorization systems, along with those that employ “cognitive behavioral manipulation.” France and Spain succeeded on obtaining biometric system exemptions for specific law enforcement uses, which was a major point of contention within the trilogue negotiations. Another part of the agreement includes transparency requirements from the European Parliament’s draft of the legislation on general purpose AI. The final text has not yet been released.

The EU AI Act differs from recent U.S. attempts to establish AI governance mechanisms, such as the Executive Order (EO) on Safe, Secure, and Trustworthy AI, along with private sector voluntary AI commitments. Where the European Union relies on a risk-based assessment, the EO instead calls for increased transparency for powerful models.

The measures also differ on national security language. Defense and national security are EU member state competencies, and thus the AI Act will not apply to military AI systems. The U.S. EO focuses on models that could threaten national security and calls on the National Security Council to produce a memorandum delineating further actions on AI and security, such as out how to regulate military and intelligences uses of AI.

Another difference relates to the durability of the EU AI Act versus U.S. efforts. The AI Act sets precedent not only at the EU level but as the world’s first binding and far-reaching approach to regulating AI, similar to the “Brussels Effect” that the bloc achieved with its General Data Protection Regulation. The rapid pace of AI development will test the ability of the regulation to remain evergreen, especially when parts of the European Union’s legislation will not enter into force for up to two years. While the EO is binding in some respects, provisions such as those related to privacy will require an act of Congress. However, political gridlock in Congress makes major legislative packages unlikely, leaving the Biden administration to explore the full possibilities of the administrative toolkit.

While the European Union has again assumed first-mover advantage in digital regulation, the Biden administration has demonstrated its strong commitment to seeing concrete progress on AI regulation both through its executive order and its leadership role within the G7 Hiroshima AI Process. Greater transatlantic convergence on rules and standards will bolster efforts elsewhere, particularly as Italy prepares to host the G7 in 2024. Heading into the G7, the European Commission and United States can reinforce AI progress through the bilateral TTC Joint Roadmap for Trustworthy AI and Risk Management.

Q5: How can the parties deepen technology cooperation in 2024?

A5: The European Union and United States should redouble efforts to deepen cooperation within the TTC, particularly as they prepare for the fifth ministerial meeting, slated to occur in Washington, D.C., in January 2024. The TTC provides a useful framework for comparing notes on the deployment of semiconductor funds, establishing standards on AI, and preventing the misuse of technology. The parties will also need to jointly explore trade defense and remedy tools as Chinese chip overcapacity begins to sting amid an industry-wide downturn. The TTC already contains a working group dedicated to combating nonmarket economic practices, which the parties can further bolster.

In a technology-driven economic security environment, the United States and European Union will be stronger together. This includes working toward greater convergence on AI regulation, efficient deployment of chips funding, and concerted efforts to de-risk supply chains in other high-tech sectors. The United States and European Union will also need to seek buy-in from developing economies, which feel left out of the international technology agenda but who supply many of the inputs that power advanced technology.

Both parties are entering historically important election seasons, which will put additional pressure on the viability of the TTC. However, given the issues at hand—mounting geopolitical tensions worldwide, the deployment of advanced technologies with potentially catastrophic risks, and the growing use of high-tech industrial tools—the European Union and United States should double down on this existing cooperative framework to maximize mutually beneficial gains.

Emily Benson is the director of the Project on Trade and Technology and senior fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Catharine Mouradian is the program manager and research assistant with the Project on Trade and Technology at CSIS. Gloria Sicilia is an intern with the Project on Trade and Technology at CSIS.

The program also thanks CSIS intern Pau Alvarez-Aragones for his research support.

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Emily Benson
Director, Project on Trade and Technology and Senior Fellow, Scholl Chair in International Business

Gloria Sicilia

Intern, Project on Trade and Technology