In a recent study, the International Monetary Fund (IMF) warns of a subsidy war in the chip industry. The competition for new semiconductor production plants is leading to a series of false incentives and undesirable side effects. The additional billions for the industry, for example, exacerbate the shortage of skilled workers in other sectors. In addition, the risk of overcapacity is increasing.

Beyond the fundamental risks, the German government should above all consider what conclusions can be drawn about Germany as a business location on the basis of the competition between locations.

The immediate findings are dramatic when, for example, subsidies in the USA and Germany are compared. In the USA, TSMC receives around 6.6 billion dollars and subsidized government loans of up to 5 billion dollars. In return, a total of 65 billion dollars will be invested in three ultra-modern plants. For TSMC to invest in Dresden, „only“ 5 billion euros had to be spent. But the total investment amounts to just over 10 billion euros and it is only a single plant. Intel receives 8.5 billion dollars in government money and up to 11 billion dollars in loans in the USA, but is investing a total of around 100 billion dollars. In Germany, 10 billion euros had to be raised for Intel to start up in Magdeburg with around 30 billion euros.

The message of the quick comparison is obvious: Germany has failed to convince investors in the chip industry of its advantages- and needs to stump up more cash. Germany is lagging behind not only in comparison with the United States, but also other countries. If you look at the detailed planning for the plants in Germany, the subsidy policy appears even more questionable in some cases.

For example, the TSMC plant will manufacture semiconductors with structures in the double-digit nanometer range. In principle, this means that outdated technology is being extremely heavily subsidized. Chips with structures of less than five nanometers have long been commonplace. 2-nanometer chips are currently state of the art. In Japan, chip manufacturers are also being subsidized to the tune of billions so that the country, which is a world leader in two-digit nanometer structures, can finally play a part in state-of-the-art semiconductors. So Germany is investing billions in order to reach a position where Japan no longer feels comfortable.

At least the assessment is more positive in the case of Intel. The US company wants to build chips with 1.5 nanometer technology in Magdeburg. This is real high technology, and can at least justify a higher investment. In the case of TSMC, the government was probably primarily concerned with security of supply, after a semiconductor bottleneck temporarily slowed down the automotive industry. A thoroughly backward-looking decision.

And not only is too much money being made available for outdated technology. By the time production in Dresden is scheduled to start in 2027, there will probably be an oversupply rather than a shortage, given the numerous semiconductor factories that are currently being built.

However, the real question is not how to ensure that subsidies are allocated with more precision. Rather, Berlin needs to ask itself what is currently making the location so incredibly unattractive that it has become so expensive to attract investors to the country. Ultimately, this location weakness not only costs growth, but also billions of euros for taxpayers. Education, bureaucracy, infrastructure deficiencies, an increasingly unaffordable welfare state and a high level of regulation form the ballast with which Germany enters the subsidy race. And a race is rarely won by the one with the heaviest rucksack. Germany is already one of the losers, even though the race has only just begun.