There is an uncomfortable truth hanging over Europe: its economic fate is increasingly tied to the ups and downs of US–China relations — a reality laid bare in the latest tit-for-tat of a trade war that’s left Europe as a battered and bruised bystander.
Since Beijing tightened export controls of rare earths in April in response to Washington’s steep tariffs, Europe has borne one of the heaviest burdens. Then, when the US last week persuaded China to hold fire for one year on additional restrictions due to come into effect at the start of December — in exchange for lowering its levies on Chinese goods to 47% from 57% — European officials and manufacturers alike breathed a sigh of relief.
Rare earths, which underpin the technologies that power drones, tanks, submarines and missiles, are crucial for the EU as it tries to build up its defence capabilities in the face of an increasingly belligerent Russia. The critical minerals are also essential for much of the hardware Europe relies on for its green transition, including batteries that are essential for electric vehicles and solar panels.
“Europe increasingly finds itself in a position it never wanted to be in, meaning to be the battleground of the strategic rivalry between the US and China,” said Gunnar Wiegand, a visiting distinguished fellow at the German Marshall Fund, who previously worked as a former diplomat at the European External Action Service.
China, which produces 90% of the world’s 17 rare earths, first imposed such restrictions on five rare earths in April. While Beijing has backed away from its threat to expand the export restrictions to an extra seven following a meeting between Chinese President Xi Jinping and US President Donald Trump in South Korea in late October, the initial restrictions will remain in place for all China’s trading partners.
Analysts also widely view the temporary reprieve as a bogus solution, given its monopoly of rare earths grants Beijing a trump card that it can play at will. The EU’s executive arm, meanwhile, held separate talks with a senior Chinese delegation a day after the US and China struck a deal. Maroš Šefčovic, the European Commissioner for trade, described the talks as “constructive” and confirmed that China’s decision to hold fire on additional export controls applied to the EU, as well.
Nonetheless, “the Europeans were effectively collateral damage,” said Jason Bedford, a visiting senior research fellow at the Singapore-based East Asian Institute. Bedford argued that the rare earth export restrictions impacted Europe much more significantly than the United States in large part because of the continent’s lack of stockpiles, even though the US was China’s primary target.
Under the current restrictions that China implemented in April, foreign exporters of technologies that use Chinese rare earths as components must acquire require a permit, even if the elements are only present only in minimal doses. Yet licenses are rarely approved on time, leaving European companies at the mercy of China’s snail-paced bureaucracy.
“This is a bureaucratic nightmare, and it requires a Chinese bureaucracy which responds fast to demands, and that is simply not the case,” Wiegand said.
As of September, the EU Chamber of Commerce in China reported that EU companies had asked for its help to expedite over 140 applications for rare earth export licences since April, but that only one quarter had been fulfilled in that time period.
Europe’s 30-year rare earth dependence
The prospect of being cut off from additional rare earth supplies — which would have further pressured European industry and supply chains — jolted EU policymakers into action last month.
Speaking at the Berlin Global Dialogue in late October, European Commission President Ursula von der Leyen announced RESourceEU, a new initiative aimed at accelerating the EU’s long-standing efforts to reduce its dependence on Chinese critical minerals. For now, details on the new proposal remain scarce, but mandatory stockpiling of rare earths is expected to be its centrepiece.
It’s not the first time Von der Leyen has vowed to reduce the EU’s reliance on China’s near monopoly on rare earths. In March 2023, as she outlined a new vision for EU-China relations and introduced the concept of “de-risking” from Beijing, the Commission chief endorsed similar measures to diversify supply, boost homegrown production, and recycle more rare earths through a legislative initiative known as the Critical Raw Materials Act (CRMA).
Since then, the EU has unveiled an initial batch of 60 strategic projects and made critical raw material provisions a central component of all new trade agreements. Still, experts warn that making up for three decades of inaction is easier said than done.
“The whole world is irresponsible when it comes to rare earths,” Bedford said, slamming countries for waiting so long to build up their inventories given China demonstrated 15 years ago it was willing to weaponise rare earths.
China first imposed an embargo on rare earth magnets against Japan in 2010 as Beijing sought to solve an unrelated foreign policy issue. The move demonstrated how Beijing’s dominance in rare earths could be used as a geopolitical lever, prompting Japan to secure alternative suppliers and build up its stockpiles. As a result, Tokyo’s reliance on China is estimated to have fallen to 60% from 80% over the past fifteen years.
Brussels’ trade defence arsenal
When the risk looked imminent ahead of the US-China deal, Von der Leyen promised swift retaliation against China’s restrictions.
“Our response must match the scale of the risks we face in this area,” she told the Berlin Global Dialogue, warning that the EU is “ready to use all of the instruments in our toolbox to respond if needed”— a clear reference to the bloc’s Anti-Coercion Instrument.
Originally designed to counter economic blackmail against a European country, the tool — deemed the most potent weapon in the EU’s trade defence arsenal — would allow the EU to retaliate by restricting access to its single market, including public procurement tenders.
“We are keeping that option open if we need it,” a senior Commission official told reporters last week, speaking on condition of anonymity following the US-Chian détente.
To Wiegand, the former diplomat, there is little doubt that China’s latest export restrictions from April constitute economic coercion. “This is definitely a coercive approach by the Chinese side, which can only lead to paralysis and chaos,” he told The Parliament.
Still, references to the so-called trade bazooka risk ringing hollow, given the mechanism was frequently invoked in Brussels’ trade talks with Washington earlier this year but never activated, largely due to divisions among member states. Instead of retaliating against Trump’s aggressive trade tactics, the EU reached a deal with the US in July that includes a 15% across-the-board tariff rate on nearly all European goods sold in the American market.
“This is the moment to see if [the Anti-Coercion Instrument] is more than a paper tiger,” said Jasper Roctus, a fellow at the Egmont Institute, days before the agreement between the US and China. Even with the current reprieve, the EU’s credibility as a trade negotiator hinges on whether Beijing believes Brussels could one day pull the trigger.
EU-China relations on ice
In theory, the risk of losing access to the EU’s €18 trillion market should worry a country whose export-oriented economy can’t afford to alienate its biggest consumer market after the US.
Still, Wiegand admitted, many in Europe feel that China has come to take them for granted.
“Probably because China notices that, since we are a union of 27, different positions are taken by different members. And we know that, the bigger the partner, the more divide et impera is applied,” he suggested, referring to China’s tendency to prioritise bilateral relations with EU countries at the expense of the EU executive.
While France recently pushed for deploying the bloc’s so-called trade bazooka, more China-friendly countries — namely, Hungary and Spain — are unlikely to back an instrument that would put the bloc on the path to a trade war with their key investment partner.
With approximately €3.1 billion in Chinese foreign direct investment in 2024 — roughly 31% of China’s total investments in Europe — Hungary is the EU country that’s cashed in the most on Beijing, overtaking Germany, France, and the UK. Meanwhile, Spain, whose prime minister, Pedro Sánchez, has visited China three times since the start of his term in 2023, is courting a €900 million Chinese investment in the shape of an electrolyser plant to generate green hydrogen.
Regardless of how the rare earth dilemma will be resolved, there is no hiding that China’s latest escalatory move against the US also constituted a new low in the already fractious relationship between Brussels and Beijing — a complete 180 from earlier assesments that the trade war sparked by Trump would edge the two sides closer.
A bilateral summit in July, intended to mark 50 years of diplomatic ties and herald a reset, ended instead on a sour note after it became clear that China had no intention of addressing Brussels’ key demands — from opening up its market to European companies to fixing increasingly sweeping trade imbalances.
In 2024, the EU recorded a trade deficit with China of €300 billion, according to Eurostat. Over the past decade, EU imports from China have soared by more than 102%, while exports to China have grown by just 47%.
But relations haven’t plunged only because of economic factors.
Wiegand called China’s backing of Russia in its war of aggression in Ukraine the “single most deteriorating element” in EU-China relations, adding that “it has taken away a significant portion of trust.”
Ties between China and Russia have strengthened notably since the latter invaded Ukraine in early 2022, with Moscow now largely dependent on Beijing for its oil-and-gas revenues, as well as the import of semiconductors and microcircuits for manufacturing military equipment.
As Roctus, the think tanker, noted: “It shows that we cannot trust China in the way that we used to do in the past decade.”
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