Executive Summary
Rare-earth elements (REEs) constitute immense necessities for powering facets of modern technology such as EV motors, permanent magnets in the defence sector, and many others. The dependence on REEs for such critical industries creates a demand vacuum so strong that it is only satiated by the Chinese domination of REE supply chains, with about 60-70% of mining and 90% of processing strongholds. The European Union sources over 98% of its rare-earth magnets from China. Should China pull back its REE export volume, the EU’s sourcing dependency will be highly exposed, and this is exactly the imminent scenario with China’s recent export restrictions on REE and related technologies in October 2025. This move has triggered urgent talks in Brussels on how to conduct the identification of alternative sources and trigger the breakdown of Chinese domination, which is expected to take over a decade. However, following a summit between U.S President Donald Trump and Chinese President Xi Jinping on October 30, Beijing agreed to curb export controls for one year to both the USA and the EU in exchange for tariff concessions on fentanyl trade and smooth flow of semiconductors. While this offers temporary relief, this altered stance has no structural change to Europe’s vulnerability.
Key Points
- In October 2025, Beijing expanded export controls on key rare-earth magnets and oxides, citing national security concerns. The new rules, effective from 8 November 2025, require licenses for exporting components or equipment made with Chinese REEs.
- The EU imports 98% of its rare-earth magnets from China, leaving clean-energy, automotive, and defense industries highly vulnerable.
- On October 30, China agreed to suspend its new REE export restrictions for one year, pending a US-China deal on tariff concessions and fentanyl trade, easing short-term pressure.
- Brussels has initiated emergency discussions under the ‘EU Critical Raw Materials Act’, exploring alternative suppliers (Australia, Canada, Namibia) and strategic stockpiles to mitigate the vulnerability.
Analysis
The Trump-Xi agreement signifies a temporary detention of curbing measures rather than a complete reset. China’s decision to suspend export controls of REEs came in exchange for the USA’s promise of cutting average tariffs on Chinese goods from 54% to 47% and delaying new technology restrictions. This move demonstrates how China perceives its REEs stronghold as a softcore weapon, underscoring that the truce is transactional, rather than a transformational one. This strategy of construing dominance as a geoeconomic bargaining chip from Beijing, however, is not new to the world since its earlier rare-earth embargo on Japan in 2010.
In the context of the EU, the underlying vulnerability remains intact. The continent still sources nearly all its rare-earth magnet demand from China, revealing the embedded dependency in every aspect of its green and defence industries. More specifically, Germany was forced to halt production measures in its successful electromobility industry, whereas wind turbine projects faced shipment delays as magnet supply plunged by 75% year-on-year. The impact of REE controls, first announced by China in April 2025, sounds ever so significant in the case of Germany, when placed in the context of the country being the highest importer of magnets, comprising 18.8% of China’s total exports. Even with the reprieve, European manufacturers remain exposed to price volatility and unidimensional supply chain dependence, licensing uncertainty, and geopolitical spillover.
More broadly, the EU is caught between two economic heavyweights, with the rare-earth episode reflecting a familiar pattern of weaponized interdependence. Trade tools serve as leverage in wider dynamics, giving the EU only a temporary reprieve while remaining a policy-taker in this indisputable rivalry.
Policy Implications
- In the short term, the EU should secure transparent export-licensing arrangements while coordinating with the US on technology and mineral diplomacy to ease further disruptions.
- Over the medium term, the EU must accelerate the implementation of the Critical Raw Materials Act by concluding supplier agreements with Australia, Canada, Namibia, and Japan to establish alternate REE supply chains.
- Another underestimated option is the EU’s ‘Anti-Coercion Instrument’ (ACI) established in 2023, which, as a collective countermeasure, can reduce China’s geoeconomic leverage.
- The EU retains leverage in aviation, since China still depends on Western turbofan engines for its domestic aircraft. Restricting these exports could delay Beijing’s drive for self-reliance and disrupt its expanding freight aviation sector.
- Long-term resilience requires addressing internal barriers to alternative supply chains, from cutting red tape to funding gaps, to make use of the reprieve. Japan’s ¥100 billion countermeasures in 2010, which cut its dependence on Chinese REEs by 30%, offer a model for building lasting autonomy from Beijing’s grip.