European Union leaders have vacillated between (1) whether to incentivize foreign firms at the cost of subsidizing European champions and (2) whether to bolster existing strengths in mainstream chip production or attract cutting-edge technologies. Policymakers should focus Chips Act funds on domestic firms to catalyze long-standing vertically integrated European value chains in mainstream chip technology.

The EU Chips Act is only the first step toward technological autonomy. Europe needs broader regulatory and tax reforms to create a conducive environment to help innovators create startups and for these startups to scale. These reforms are crucial to addressing the unique funding gaps that European startups face.

This memo lays out what challenges Europe faces in computing, how disciplined implementation of the Chips Act can bolster the continent’s existing strengths, and what further policy reforms could make the EU indispensable in broader swaths of the future chip industry. EU leaders must be honest with what the bloc’s current levels of public funding can reasonably expect to achieve.

If Europe is to build resilient supply chains and increase its technological autonomy vis-à-vis China and the US, the EU Chips Act must catalyze the continent’s domestic virtuous cycle of upstream chip innovation and downstream chip implementation. Beyond targeted support for Europe’s vertically integrated technology ecosystem, broader regulatory and tax reform must follow the Chips Act to create an environment fertile for growing more European champions.