China trade conflict: Rare earths are becoming rare – now also in the EU

The stricter Chinese export controls on rare earths are becoming a major problem for European industry. As the EU Chamber of Commerce in China announced in Beijing on Wednesday, some European manufacturers are already facing a complete production stop this week because they are running out of raw materials. This was reported by the Nikkei Asia news agency.

The crisis is a direct result of the escalating trade tensions between the US and China, Jens Eskelund, President of the EU Chamber of Commerce, told members and journalists: At the beginning of April, Beijing imposed export restrictions on seven critical rare earth elements and magnets – in response to the “reciprocal” tariffs announced by US President Donald Trump. The European Chamber of Commerce in China (EUCCC) is a non-profit association that supports and represents the interests of companies from the European Union that are economically active in China.

Indispensable for e-cars and the industry

The materials in question are indispensable for a wide range of industrial products, from electric vehicles and wind turbines to defense equipment. China controls around 85% of global refinery capacities for rare earths, which makes the dependence of Western manufacturers particularly precarious.

Although the USA and China agreed on a partial easing of tensions in mid-May and paused additional tariffs, the license requirements for rare earths remain in place. According to the Chamber of Commerce, there is a “considerable backlog” in the processing of export applications by the Chinese authorities.

The problem was discussed at a meeting between EU and Chinese semiconductor companies on Tuesday. Representatives of the Chinese Ministry of Commerce assured that they were “working hard” to cope with the increasing demand for licenses. However, they did not mention any concrete solutions or timetables.

Just the tip of the iceberg

However, according to the Chamber of Commerce, the export crisis is just the tip of the iceberg: a recent survey of its members showed a significant deterioration in the business climate. 73% of the companies surveyed stated that doing business in China had become more difficult in 2024. 63% of companies stated that they had missed out on business opportunities due to regulatory or market access barriers – also a record figure.

There were major differences between the sectors: While all companies surveyed in the medical technology sector were affected, the proportion in the automotive industry was 39 percent. A meeting between Chinese and EU trade representatives is planned for the beginning of June in Paris. An EU-China summit is also scheduled to take place in Beijing in July.

(mki)