Europe’s recent “summer of humiliation” in global trade talks has been widely attributed to the EU’s cautious approach toward former U.S. President Donald Trump. Yet analysts warn that Beijing’s two-pronged economic offensive poses a far greater and longer-term threat to Europe’s prosperity and industrial base.
While China floods global markets with underpriced exports, it simultaneously wields critical raw materials (CRMs) as a powerful weapon of economic coercion—throttling supplies of essential minerals that power Europe’s industries, from automotive and aerospace to semiconductors, energy systems, and defense.
China’s Dual Strategy: Subsidized Exports and Strategic Supply Cuts
President Xi Jinping has spent decades transforming China into an industrial fortress. Supported by massive state subsidies, cheap electricity, extensive transport infrastructure, and a skilled workforce, China’s manufacturing ecosystem outcompetes Europe at every level. The result: European industries are being hollowed out, losing global market share in key sectors like cars, electronics, and machinery.
But in 2025, Xi opened a second geo-economic front—restricting exports of vital materials like rare earths, gallium, and germanium, which are essential for products ranging from data centers and medical devices to fighter jets and radar systems. These export curbs reflect China’s long-term strategy to use critical raw materials as leverage in global power dynamics.
Rare Earth Restrictions: A Geopolitical Weapon
Beijing’s control of 90% of the world’s rare earth processing allows it to throttle global supply with the turn of a valve. In 2025, exports of permanent magnets to the United States plunged by 92%, while shipments to Southeast Asia—Malaysia and Thailand included—were halved.
In Europe, the EU Chamber of Commerce in China (EUCCC) reported that by September, Beijing had approved just 19 of 141 rare earth export licence requests. European industries were left reeling, unsure why they were being punished for U.S.-China trade tensions.
The reason, analysts say, is that Xi’s strategy serves multiple goals: strengthening China’s domestic resilience, tightening foreign dependence, and forcing concessions on trade, technology, and political issues.
The Eight Faces of Beijing’s Raw Material Weapon
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Industrial Espionage Through Licensing:
European firms seeking export licences must disclose sensitive technical data, allowing Beijing to map industrial and military supply chains and infer the composition of high-value components such as semiconductor wafers. -
Strategic Leverage in Negotiations:
China uses its resource dominance as a bargaining chip. Ahead of the EU–China Summit, Beijing offered preferential “green-list” access to rare earths—if the EU eased tariffs on electric vehicles and medical devices. -
Erosion of Industrial Capacity:
Supply shortages forced European automakers and electronics producers to halt operations. The EUCCC recorded seven plant shutdowns in August and 46 more expected in September, as prices for key materials spiked outside China. -
Deepening Dependence:
To avoid further disruptions, some companies are considering relocating high-value production to China, reinforcing the very dependence Europe seeks to escape. -
Undermining European Security:
By cutting off supplies to European and U.S. defense manufacturers while continuing shipments to Russia, Beijing indirectly weakens Europe’s rearmament efforts at a time of heightened regional threats. -
Constraining Military and Technological Innovation:
Limited access to advanced materials stifles R&D in radar systems, quantum computing, and next-gen electronics, curbing NATO’s ability to counter China and Russia’s industrial advantage. -
Driving a Wedge Among Allies:
Desperate for access, Western nations have pursued separate bilateral deals with Beijing—threatening transatlantic unity. The U.S. ban on reexports of Chinese magnets to NATO allies has deepened the divide. -
Deterring Political Opposition:
Beijing’s control over vital inputs—from semiconductors to pharmaceuticals—serves as a geoeconomic deterrent, raising the cost of opposing China’s territorial ambitions or coercive policies.
Europe’s Wake-Up Call: Reindustrialization or Decline
President Xi’s “economic warfare” is part of a broader plan to make China the world’s dominant industrial power, capable of shaping markets and policies far beyond its borders. For Europe, the message is clear: dependence equals vulnerability.
The EU is now working to implement its Critical Raw Materials Act (CRMA), accelerate domestic mining and recycling projects, and forge strategic partnerships with allies like Canada and Australia. But experts warn that these steps must be accompanied by a bold reindustrialization strategy to restore Europe’s competitiveness in clean tech, semiconductors, and advanced manufacturing.
Europe cannot afford complacency. While Trump’s tariffs may grab headlines, Xi’s methodical weaponization of supply chains represents the real, long-term threat to European sovereignty and prosperity. To withstand this new era of geo-economic confrontation, the EU must build its own critical raw material resilience—and fast.
