Although giant pandas are the national animal of China, they could also serve as a fitting symbol for Europe: both are experiencing plummeting birth rates, environmental devastation, and – in fairly recent memory – territorial incursions by a larger, Russian bear.
Just as our furry mammalian cousins’ survival hinges on their access to bamboo, the Chinese and European economies are also crucially dependent on a highly specific resource: the 17 chemically similar, silvery-grey metals known as “rare earths”.
As many analysts have pointed out, the term is a misnomer: rare earths are not, in fact, especially rare, but can be found in numerous parts of the world, including Australia, Russia, and the US. (Strictly speaking, they aren’t even earths either.)
Unfortunately, Chinese strategic planning, European NIMBYism (rare earth extraction and processing are highly polluting), and historical accident have led Beijing to dominate the world’s current supply of the metals, accounting for about 70% of global mining and 90% of total refining.
In a stable, peaceful world, the world’s overwhelming reliance on a single country for strategically critical elements wouldn’t be problematic. But in a world of heightened geopolitical tensions – namely, our actual one – such vulnerabilities will almost inevitably be weaponised.
Recent events show just how ruthless this weaponisation can be.
Although Beijing first strengthened its grip on the supply of rare earths following a territorial dispute with Japan in 2010, its chokehold tightened significantly this April, when US President Donald Trump launched a trade war on literally the entire world – with China the principal target.
Beijing’s imposition of sweeping retaliatory export controls immediately sparked pandemonium (or should that be panda-monium?) not just in America, but in Europe, where carmakers and other key industries have been forced to delay or shutter production.
Washington quickly backed down. Beijing, however, did not. Indeed, European firms have continued to struggle to obtain export licences for the elements, which are used to manufacture not just cars but also crucial military hardware, such as fighter jets and radars.
On Thursday, China further constricted its bureaucratic claws’ clasp – in a move that could, potentially, throttle the entire global rare earth supply chain.
Under the new export system, products containing trace amounts of Chinese elements will require a licence before they can be shipped outside the country. Exports of the metals for overseas military use, meanwhile, will “in principle” be banned.
Responding to the announcement, the European Commission expressed “concern” and stressed, somewhat pathetically, that it “expects China to act as a reliable partner and to ensure stable, predictable access to critical raw materials.”
EU firms, meanwhile, could barely hide their frustration – and their fear.
The controls “add further complexity to the global supply chains of rare earth elements”, said Jens Eskelund, president of the EU Chamber of Commerce in China, adding that the announcement is “likely to increase trade tensions further” between Brussels and Beijing.
Analysts agreed. “It’s a serious escalation in the weaponisation of critical materials,” said Arthur Leichthammer, a policy fellow for geoeconomics at the Jacques Delors Centre in Berlin.
Although “much remains uncertain” about the new measures – including how strictly and consistently they will be enforced – they nevertheless “have the potential to seriously hit both Europe’s civilian and defence industrial production,” he added.
Bear necessities
But why did China announce this new scheme now?
One potential answer also points to events on Tuesday, when the Commission, which oversees EU trade policy, proposed doubling the bloc’s tariffs on steel to 50% – a move that was widely regarded as targeting China, the world’s top producer of the alloy.
Could correlation be causation? Are Beijing’s export controls, in fact, retaliation against Brussels’ attempt to, as the Financial Times put it, “weld itself to the US”, which introduced similarly steep steel levies earlier this year?
Experts warn that the answer is not so black and white.
Indeed, they argue that the measures are more likely aimed at Washington – and, in particular, are intended to strengthen Beijing’s hand ahead of a potential meeting between Trump and Chinese President Xi Jinping in South Korea later this month. (Trump on Friday suggested that he may not attend the meeting because of the restrictions.)
“This measure seems quite drastic,” said Niclas Poitiers, a research fellow at Bruegel, a Brussels-based think-tank. “China might not expect to enact it in full; rather, it’s creating leverage for negotiations.”
The fact that the controls closely mirror America’s “extraterritorial” export restrictions on advanced US-made semiconductors to China further bolsters the case that Washington is the prime target, analysts said.
“It’s maybe not a complete coincidence that this came just two days after the steel tariffs, but this would have been planned long ago,” said Leichthammer. “The reality for us Europeans is that we’re not the priority here anymore.”
Why the (bamboo) stick?
This, however, still leaves some crucial questions unanswered.
First, why did China opt for the stick, rather than the carrot, ahead of the meeting with Trump?
The answer, it seems, is that China believes – probably correctly – that Trump ultimately only respects strength. Indeed, by standing up to Uncle Sam in April, China has been the only country to secure actual concessions from the US since Trump’s return to the White House – and has won the respect of much of the Global South in the process.
Poitiers also noted that Beijing has already partly offered the US a “carrot” by agreeing to the sale of the Chinese social media app TikTok to US firms.
“The carrot – the gesture of goodwill – was the TikTok deal,” he said. “And now they’re showing that they also have a big stick. They’re basically saying: ‘If we work together, there are opportunities here. But if we don’t, then we can make life difficult.’”
These considerations naturally suggest lessons for Brussels’ own attitude toward Washington – one which even senior EU officials admit is entirely submissive.
But they also raise another, worrying question: Is the EU’s relationship with both Washington and Beijing increasingly being dominated, or even determined, by the US-China rivalry?
Analysts are uncertain. “We are at an interregnum: a moment where power is up for grabs, and the rules of the game are in play,” said Poitiers.
Whatever happens, let’s cross our claws that, at the end of this period, Europe’s economy avoids turning into a “museum”, as many EU leaders have long warned – and, perhaps even more importantly, that we steer clear of the fate of the world’s pandas: and end up trapped in a zoo.
Economy News Roundup
Brussels ‘concerned’ by new Chinese rare earth restrictions. The European Commission said it was unsettled by China’s sweeping new export controls on strategically critical rare earths on Thursday, as relations between Beijing and Brussels continue to deteriorate just days after the bloc announced steep levies on Chinese steel imports. Read more.
EU alignment with Washington on China a ‘surprise’, says new US ambassador. In an exclusive interview with Euractiv, Andrew Puzder said he thought he “would have to do more” to persuade EU officials to regard Beijing as a strategic, political, and economic “adversary”. Read more.
Union chief urges Brussels to protect workers’ rights. The European Commission has repeatedly rebuffed unions’ demands to drop the “threat” of rolling back workers’ protections in its push to slash red tape, the head of Europe’s largest trade union organisation told Euractiv. Esther Lynch, general-secretary of the European Trade Union Confederation (ETUC), also said Brussels’ €2 trillion budget proposal is also “too small” and could spell “disaster” for European regions. Read more.
EU must seize ‘unique opportunity’ to supplant US dollar dominance, says ECB president. The European Union must “do its homework” and seize the unprecedented opportunity to strengthen the global role of the euro at the expense of the US dollar, Christine Lagarde told MEPs on Monday. Read more.
EU has ‘no final idea’ on how to reconcile twin Ukraine loan schemes. The Commission is struggling to work out how to fund a planned €185 billion Ukraine reparation loan using frozen Russian assets while keeping a separate €45 billion G7 scheme on track, a senior EU official said on Monday. Read more.
Brussels backs down from ‘no deregulation’ pledge. The European Commission refused to confirm on Monday that its previous commitment to “simplify” EU legislation without “deregulating” remains intact, after President Ursula von der Leyen emphasised the importance of “deregulation” to boost growth and private investment last week. Read more.
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