Chinese export controls, dependence on the U.S. for technology and the structural weakness of Europe's domestic chip industry mean it faces a "bleak future," an EU-funded report found on Thursday.
The independent report by the European Union's Institute for Security Studies and French think-tank Institut Montaigne concluded that Chinese export controls on critical minerals and magnets or the risk of a war in the Taiwan Strait were major threats to supply.
Further vulnerability stems from the EU's dependence on the U.S. for technology, including design software and the possibility the U.S. could block exports to China by chip-making equipment supplier ASML, Europe's most valuable company.
The U.S. Congress is debating a proposed law that would give Washington the power to unilaterally impose export controls on allied nations and their companies.
"While Beijing still appears to be the biggest threat, dependence on Washington seems to have become of much greater concern under the second Trump administration," co-author Joris Teer, a policy analyst at the Institute for Security Studies, told Reuters.
The European Commission is seeking to shore up the bloc's industry and in June proposed a Chips Act 2.0 that EU lawmakers must now discuss.
The proposal includes incentives to improve demand for domestically manufactured chips and it also joined Washington's "Pax Silica," an initiative of allied countries cooperating to secure supply chains.
In addition to cooperating with allies to counter China, Teer said Europe's "only viable path" is to build on its existing pockets of strength, such as in the chipmaking equipment produced by ASML, to improve leverage.
The report, which drew on industry, political and academic sources, also found that factors including Europe's continuing high energy prices, lack of private capital, and the decline of industries that use chips have undermined the sector's competitiveness.
