Europe’s €3 Billion Raw Material Triage: Why Decoupling from China Is Harder Than Ditching Russian Gas

As an Auto Market Insight Analyst based in China, I have a front-row seat to the tectonic shifts rocking global supply chains. For years, Western manufacturers—especially in the crucial EV and clean energy sectors—operated under the outdated premise of rules-based trade. That world is dead. The European Union’s newly announced plan to reduce its dependency on Chinese critical raw materials (CRMs) is not a proactive strategy; it is a desperate triage.

The Geopolitical Weaponization of Trade: A Wake-Up Call for Automakers

The urgency driving Brussels stems from the undeniable weaponization of critical minerals. Central Bank President Christine Lagarde recently underscored Europe’s plight, noting that the continent’s reliance on third countries for materials and security contributes to its “increasing vulnerability.” The geopolitical stress test became acute following Beijing’s moves, including the imposition of new export controls on key materials like graphite, gallium, and germanium, which are indispensable for semiconductors and batteries.

For the European and US automotive industry, this is an existential crisis, not a logistics hiccup. The transition to electric mobility—the cornerstone of Europe’s green agenda—is entirely dependent on a supply chain currently choked by a single dominant player.

The True Scale of Europe’s China Dependency

The numbers reveal a catastrophic level of reliance that dwarfs previous dependencies on Russian energy:

• Rare Earths: The European Union relies on China for an estimated 85% to 90% of its total rare earth element (REE) supply.
• The Magnet Bottleneck: The dependency on permanent magnets—critical for every EV motor and wind turbine—is near-total, with the EU sourcing a stunning 98% of these magnets from China.
• Processing Choke Point: Critically, China controls approximately 90% of the global rare earth refining and processing capacity, a technological and cost advantage that cannot be quickly replicated.

The RESourceEU Response: A Drop in the Ocean?

In response, the European Commission is advancing its Economic Security Doctrine, with the RESourceEU Action Plan leading the charge on critical raw materials. The plan aims to accelerate domestic sourcing and processing, building on the targets set out in the Critical Raw Materials Act (CRMA).

The CRMA’s Ambitious 2030 Benchmarks:

• At least 10% of the EU’s annual strategic raw material consumption must be extracted domestically.
• At least 40% must be processed (refined) within the EU.
• No more than 65% of any strategic material can come from a single third country.

The Funding Gap and the ‘China Advantage’

While the intent is clear, the funding proposed for immediate relief appears drastically insufficient given the task’s complexity. The Commission is mobilizing nearly €3 billion in EU financing over the next 12 months for CRM projects, with the European Investment Bank (EIB) also scaling up annual support. This initial capital, however, is aimed at kickstarting a handful of the most urgent of 60 identified strategic projects, covering materials like lithium, gallium, and rare earths.

Reducing reliance on China’s CRMs is a far more arduous task than replacing Russian natural gas. Unlike gas, these materials are not easily substituted, and China’s decades-long dominance ensures it remains the world’s lowest-cost supplier with unmatched processing technology. Building a competitive, zero-to-full domestic supply chain—from mine to magnet—requires tens, if not hundreds, of billions in guaranteed, long-term capital, a challenge the current €3 billion allocation barely begins to address. To succeed, the EU must move from aspirational targets to aggressive state-backed guarantees that underwrite private sector risk, effectively mimicking the state-driven industrial policy it seeks to counter.

Recommended Reading

For a deeper dive into the geopolitical roots of this materials crisis, I recommend:

• Book Title: Superpower Showdown: How the Battle between Trump and Xi Threatens a New Cold War
• Authors: Bob Davis and Lingling Wei

The battle for supply chain dominance is the new front line of the US-China trade war. European industry is caught in the crossfire, and the <a href=”https://europa.eu/economic-security-doctrine” rel=”dofollow”>EU Economic Security Doctrine</a> is a recognition that business-as-usual is no longer viable.