With China and the US agreeing to suspend the enforcement of strict export controls on Chinese rare-earth materials, the EU can breathe a sigh of relief. But the episode underscores that if the EU wants to shape its own future, it must confront its critical vulnerabilities.
Key takeaways:
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The truce between Presidents Xi Jinping and Donald Trump highlights the bloc’s vulnerability to the will of these two strongmen.
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The EU’s overdependence on China leaves it little choice but to tread carefully, relying on diplomacy rather than economic statecraft, even when Beijing plays by its own rules.
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The EU’s most potent economic defence tools go unused, underscoring its lack of genuine strategic autonomy.
It is a testing moment for the European Union on the world stage. The recent meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping, underscored this uncomfortably: the two men discussed matters vital to Europe’s strategic interests—most notably, access to rare earths—without a single European voice in the room. In an age once again defined by power politics and strongmen, where geopolitics trumps economics, the EU, still largely an economic project, is struggling to define its role.
Brussels no doubt felt a measure of relief on learning that Xi had agreed with Trump to suspend the introduction of Chinese export controls on rare earths. Had they taken effect, the new rules would have required EU companies to obtain export licences for products containing even minimal amounts of these strategic metals from December 1 and would have effectively banned their export for military use. The relief, however, was tempered. EU officials, meeting their Chinese counterparts on October 31, said the situation remains unclear. China is believed to have postponed for one year the export restrictions announced in October, applying the delay to all trading partners, including the EU. But as Commission trade spokesman Olof Gill acknowledged, Brussels has yet to receive firm guarantees.
Even if it holds, this truce is no settlement. It will last for only a year, assuming everything proceeds smoothly. Moreover, the less stringent controls introduced by China in April, affecting seven of the 17 rare earth elements, remain in place. The EU must use the time wisely to avoid finding itself as exposed as it is today. For now, Europe appears largely unable to resist Chinese pressure on this front.
Europe’s uneasy dependence
Roughly 70% of global rare-earth mining and 90% of refining takes place in China, the result of years of consistent state policy and strategic investment. In 2024, 95% of the EU’s rare-earth imports came from China, Malaysia, and Russia combined, with nearly half originating in China alone. The picture is even starker for rare-earth magnets: China supplies 98% of the EU’s demand. In other words, the Union depends on a country it officially describes as a “systemic rival” for one of the most critical inputs in modern supply chains.
The issue is not dependence per se, but how critical that dependence is. Few Europeans lose sleep over the fact that 98% of baby strollers or 89% of umbrellas imported by the EU come from China. But when the same is true of inputs essential to Europe’s industrial base, the stakes are far higher.
Rare earths sit at the centre of several key European industries. They are indispensable to the automotive sector, one of the EU’s largest employers and a pillar of its industrial competitiveness. They are equally vital to the green transition, as essential components in wind turbines, electric vehicles, and other clean technologies. And they underpin Europe’s emerging defence ambitions, an area where the Union is investing heavily to bolster its military capabilities, reduce reliance on the United States, and strengthen deterrence against Russia.
EU dependency will be extraordinarily difficult, and certainly not quick, to fix. Current efforts to diversify supplies and strengthen Europe’s autonomy—through the Critical Raw Materials Act and the new “RESourceEU” plan—require both time and money, two things Europe is short of. In the short term, the EU has little choice but to engage with its Chinese counterparts. The Commission could seek an agreement with China, perhaps a licensing arrangement covering exports of rare earths for civilian use, but such a deal would almost certainly come with strings attached. While Europe may appear a collateral victim of Chinese measures, Beijing is well aware that its leverage over rare earths allows it to pressure the United States while extracting concessions from the EU. There is no shortage of disputes in which China seeks to leverage its position against Europe, including tariffs on electric vehicles and steel, investigations into foreign subsidies, and restrictions on Chinese firms’ participation in medical device procurement, among others.
Despite this discouraging picture, Europe is not entirely unarmed in the face of Chinese economic coercion. The trouble is that it seems to lack the political will to use its arsenal.
Europe has the tools, but not the will
Over the past decade, the EU has built a suite of tools to navigate an increasingly decentralized, geopolitically shaped world economy. Between 2014 and 2023, in pursuit of “strategic autonomy,” it introduced an FDI-screening mechanism, the Foreign Subsidies Regulation, and the Anti-Coercion Instrument, each intended to help Europe contend with intensifying economic competition from global players such as China.
The last of these—the Anti-Coercion Instrument, nicknamed the “bazooka” in Brussels—is widely seen as the Commission’s most powerful tool. It equips the EU with a broad range of retaliatory options, from tariffs to restrictions on services or intellectual property rights. The problem is that, so far, Europe has lacked the political will to take action.
As the EU’s High Representative for Foreign Affairs, Kaja Kallas, has noted, two conditions are essential to use it: unity among member states and a viable short-term alternative to cushion the blowback. Both are in short supply. Regarding China, the EU remains divided. Hungary and Spain—tellingly, the two main destinations for Chinese investment—illustrate the split: Madrid has grown increasingly keen to court Beijing, while Budapest has long been one of its staunchest supporters. And although activating the Anti-Coercion Instrument requires only a qualified majority, Kallas has hinted that other capitals may also be reluctant to risk a confrontation with China.
The deeper problem, however, is Europe’s lack of short-term alternatives to Chinese rare earths. That dependence leaves the EU little choice but to tread softly, leaning on diplomacy rather than economic statecraft, even when Beijing plays by different rules. It is a familiar story. Confronted with American duties, the Commission could have threatened to impose duties on US tech giants that earn a substantial share of their profits in Europe. Instead, Ursula von der Leyen opted for conciliation, signing a deal that handed Trump what he wanted while asking nothing in return. The EU now faces tariffs of 15% on most goods and 50% on steel and aluminium, while imposing no reciprocal duties on the United States. Branded in August as a move to preserve “stability and predictability” for European firms, the real motive was strategic: NATO commitments and arms deliveries to Ukraine outweighed the impacts of tariffs.
The lesson is plain. Until the EU tackles the two main weaknesses in its quest for strategic autonomy—its dependence on Chinese rare earths and its underdeveloped military capacity—Brussels will remain constrained by the decisions of stronger men, caught between competing great powers and their rival visions of the global order.
