Europe’s rare earth strategy is betting on allies
In April 2025, China imposed export restrictions on rare earth elements (REEs) and permanent magnets in response to the Trump administration’s tariffs and semiconductor controls. Because the restrictions applied to exports worldwide, however, the European Union (EU)—which had no part in the original dispute—was also caught in the crossfire.
Within weeks, Chinese shipments of rare earth magnets dropped by around 75 percent from the previous year. Only a quarter of European license requests were approved, and auto component plants cut utilization rates or shut down entirely, forcing carmakers to pause production. The initial shock even spread to the electronics and aviation sectors in Japan.
Although some restrictions were suspended in November 2025, normal supply has not been restored, and certain materials critical for permanent magnets still require approval for every shipment, causing delays and uncertainty. The resulting paperwork now goes well beyond a simple end-user statement, giving China visibility into the precise needs of individual companies and countries—a powerful form of commercial intelligence that few other governments possess.
This highlights two interconnected issues: Europe’s dependence on Chinese supply and China’s ability to turn that dependence into leverage. The EU’s Critical Raw Materials Act (CRMA), now once again under review by the European Parliament, is intended to address the first problem. But the experience of the past year raises a broader question: can the CRMA alone loosen China’s grip on European supply chains—or does Europe need a broader strategy to manage the risk?
China’s chokehold
China accounts for around 60 percent of REE mining for permanent magnet production worldwide, but its real leverage is in refining, where it controls roughly 91 percent of global capacity. That’s why simply investing in mining cannot solve the dependency problem. Even if the EU mined more of its untapped deposits, it would still have to ship them to China for refining. And since demand for magnet REEs has doubled since 2015 and continues to climb as electrification and automation scale up, China’s control over refining is becoming an even more powerful source of leverage.
The CRMA sets three non-binding targets for 2030: 10 percent of EU consumption extracted domestically, 40 percent processed domestically, and 25 percent recycled. Yet none is currently expected to be met on schedule.
In 2025, Solvay’s La Rochelle plant in France—one of the few facilities outside China capable of separating all seventeen REEs—expanded its production of rare earth materials used in permanent magnets. That same year, Canadian mining corporation Neo Performance Materials opened a new REE processing facility in Estonia.
But the scale remains modest. La Rochelle currently has an annual output of roughly 4,000 tonnes, equivalent to only about 1.5 percent of China’s total.
Reshoring realities
Could the EU reshore the industry to reduce its dependence on China? Evidence suggests that’s unlikely, especially by 2030—and certainly not without a much larger financial commitment.
Europe’s experience with battery maker Northvolt offers a cautionary example. Despite raising more than $13 billion, the Swedish company collapsed in 2024. The simple explanation is that it spent more than it earned. But the deeper problem was competitiveness: Northvolt struggled to match Chinese cost advantages and relied on Chinese equipment despite pursuing industrial independence.
Northvolt received no government financing during its crisis. The company’s former chief executive officer, Peter Carlsson, strongly criticized the decision, while Sweden’s finance minister argued that taxpayers shouldn’t fund what its owners wouldn’t. The REE sector now faces the same dilemma. If European production cannot compete with China, who pays the difference?
The answer would have to be governments—and one-off subsidies would likely not do the trick. Many experts suggest that sustained state support would be needed to match Chinese cost advantages—a far bigger commitment than most European governments are willing to make given the fiscal burden it would entail.
The case of Japan offers another warning. Despite more than a decade of efforts to diversify its rare earth supply, Tokyo has also struggled to escape its dependence on China. In January, Beijing banned dual-use exports to Japan, including rare earths and permanent magnets, hitting Japanese manufacturers, and in June, it blacklisted or watchlisted eighty Japanese companies. The problem is that Japan’s diversification has focused almost entirely upstream. It reduced dependence on Chinese mining without eliminating its reliance on processing and magnet manufacturing.
Money matters
The European Commission has approved sixty CRMA strategic projects across thirteen EU member states, as well as thirteen projects in third countries. As shown in the chart below, the Commission estimates that these projects will require €28 billion in capital investment.
So far, the financial commitments fall well short of that figure. An analysis by ODI Global of disclosed commitments identifies at least €7.5 billion in financing—and forty percent of the projects have no funding at all. Among projects with near-term production targets, three out of four are behind schedule or their progress cannot be verified, mostly because of construction financing. The European Court of Auditors has reached a similar conclusion, warning that many projects will struggle to deliver supply to the EU on time.
Why is private capital not filling the gap? Part of the answer lies in a risk that conventional markets struggle to price. Typical business risks, such as rising costs and construction delays, can be assessed and managed. But mineral projects face a different kind of uncertainty: governments can restrict exports for strategic reasons that have nothing to do with supply and demand. Investors have no easy way to value that risk. Add long payback periods, high upfront costs, a lack of guaranteed offtake agreements, price volatility driven by Chinese export restrictions, and lengthy permitting processes, and the investment case becomes even harder to make.
Allied ambition
Against this backdrop, Europe should not aim for absolute autonomy, but for strategic diversification. Having alternative suppliers creates leverage even if China remains the largest supplier.
Brussels has already started moving in that direction. In April, the EU and US signed a critical minerals pact discussing joint price floors and offtake guarantees—tools designed to make allied production commercially viable against Chinese supply. Two months earlier, in February, the US launched Project Vault, a $12 billion critical minerals stockpile combining a $10 billion loan from the Export-Import Bank of the United States with private capital, aiming to establish a strategic critical minerals reserve. Although primarily intended for American industries, it will ultimately also help allied countries by protecting manufacturers from shortages and reducing exposure to China’s export controls.
If the EU is serious about reducing its dependence on China, this kind of allied cooperation needs to become standard policy. After all, tools such as price floors, offtake guarantees, strategic stockpiles, and allied investment can give European companies something they currently lack: the confidence that Chinese export restrictions will not make their business model collapse overnight.
Europe does not need to make itself fully independent of China. The main objective should be resilience: a network of suppliers and partners that leaves the EU with alternatives whenever China decides to turn its supply chains into leverage.
Theodor Westerlund Moberg is a summer intern and a Wallenberg International Fellow with the Atlantic Council’s GeoEconomics Center.
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Image: Drone view of a large walking excavator that extracts rare metals. Source: Shutterstock.