The old continent must play to its strengths as a large market with stable rules
Photograph: AFP
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E UROPE HAS sleepwalked into all kinds of dependencies over the years, from American digital services to Russian energy. Its reliance on Chinese rare earths, crucial in everything from electric cars and wind turbines to fighter jets, is perhaps the hardest to shake off. When China started to restrict exports last year, European manufacturers panicked. A global ores race kicked off, pitting the European Union’s rule-bound approach against America’s more muscular one. On February 4th America will welcome countries at a critical-minerals summit in Washington. What will Europe bring to the table?
China’s leverage rests on its near-monopoly of rare-earth supply chains. It accounts for 70% of the ores dug up, over 90% of the refined material and nine-tenths of the magnets made from them. It has consolidated the industry into a handful of national champions and developed a tracing system to follow every tonne of rare earths.
Chart: The Economist
America needs rare earths to build lasers and aircraft, but Europe is more exposed. It has fewer exploitable deposits and imports more of the key materials than anyone bar Japan (see chart 1). Industry-heavy Germany is the single biggest importer of permanent magnets (see chart 2). “This poses a non-distant risk, and not a tolerable risk,” says a European official.
When America tried to tighten high-tech export controls on China last summer, it enlisted European firms, notably ASML, the world’s leading maker of the machines that print chips. China responded by restricting rare-earth shipments. European firms have since had to give up trade secrets to China to apply for licences. “In 2025 China learned that it can disrupt Europe’s industries at little cost,” argues Joris Teer of the EU Institute for Security Studies, a Paris-based think-tank. In October the two superpowers struck a 12-month truce and Chinese exports resumed, but that may not last. In January China tightened exports to Japan again over remarks its leader made about Taiwan.
The race to secure alternative rare-earth supplies is crowded. Uncle Sam is outmuscling everyone, throwing money at projects and host countries alike. Its see-what-sticks efforts seem chaotic to Europeans, but are directed by David Copley, a former gold miner who sits on America’s National Security Council. Of ten government-backed projects in 2025-26 listed by Project Blue, a consultancy, four are sponsored by America and only one by Europe: Carester, a refining and recycling plant in southwestern France. America has signed a flurry of investment deals to develop projects in countries including Australia, Malaysia and Saudi Arabia. By contrast, the deals Europe is pursuing, most of them in Africa, “would not have been considered tier-one projects just a few years ago”, says an industry expert.
Chart: The Economist
Europe also lags Japan, which has a head start of 15 years: it launched its response after China restricted its rare-earth imports in 2010. Japan now has a single, powerful minerals procurement agency, an established dialogue with businesses and a domestic magnet industry ready to process imported material. Technocrats from the EU ’s 27 countries are struggling to catch up with market realities. The sponsor of one active rare-earth mine in the southern hemisphere says the few calls he has had with European Commission officials have involved two dozen people, “none of whom had a title implying a commercial background”.
On December 3rd the EU unveiled its Resource EU strategy to co-ordinate member states’ efforts and push for joint procurement and stockpiling. The European critical raw materials centre, to be set up this year and modelled on its Japanese equivalent, should act as the operation’s strategic headquarters. But money is tight. The EU is scraping together €3bn ($3.6bn) to invest in supply chains and in recycling the 34 types of mined commodities it deems critical. Only two of those 34 comprise rare earths (light and heavy). The first project to get funding is in Greenland. Germany’s own resource investment fund will back just three projects, one a rare-earth mine and refinery in Australia owned by a company based in Perth.
Critics of the American approach reckon it will distort markets and waste a lot of cash. So the Trump administration wants to enlist others in the G7 to form a buyers’ club, including price floors so that Chinese competitors cannot bankrupt new projects by lowering prices. Europe also sees the need for such demand-side support, but will be reluctant to sign up to American schemes. Instead the EU might be able to play to its strengths as a large, competitive market with stable rules.
Benchmark Minerals, a data firm, suggests the bloc’s demand for key rare-earth oxides could be double or triple America’s by 2030, depending on the element; one in five magnets will also go to Europe. Industry targets for what needs to be sourced outside China, together with bloc-wide procurement and stockpiles, should create guaranteed demand at a competitive price for the next wave of projects. “The EU is trying to fix a market failure without causing another one,” says Vasileios Tsianos of Neo Performance Materials, a Canadian firm that separates rare earths and makes magnets in Estonia.
Another strength for Europe is that, whereas America and China tend to demand political concessions for investment, Europeans just want the materials. European projects typically give more contracts to local firms than Chinese ones do, and add aid to benefit the population. Apart from a few nativist industrial-policy types, most European governments are happy to help raw-materials industries develop elsewhere as long as Europe secures the output. The EU ’s recent free-trade deals, which reduce tariffs on processed materials, fit that approach.
Europe is playing a long game but must speed up and pledge more money. One rare-earth element, Europium, is abbreviated to Eu. It is used in bright red lights such as alarm signals. If China blocks exports again, Europe may need those. ■
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