China’s industrial expansion has been supported by state subsidies, cheap electricity, extensive transport infrastructure, and a skilled workforce, enabling its manufacturing ecosystem to compete across sectors including cars, electronics, and machinery. Analysts also link Europe’s recent “summer of humiliation” in global trade talks to the EU’s cautious approach toward former U.S. President Donald Trump. At the same time, they warn that Beijing’s economic strategy presents a longer-term risk to Europe’s industrial base.
Alongside underpriced exports, China uses critical raw materials (CRMs) to influence supply availability for industries that depend on essential minerals. The affected sectors cited include automotive and aerospace, as well as semiconductors, energy systems, and defense.
Subsidized manufacturing and export curbs on rare earths
In 2025, President Xi Jinping opened what analysts describe as a second geo-economic front by restricting exports of materials such as rare earths, gallium, and germanium. These minerals are described as inputs for products ranging from data centers and medical devices to fighter jets and radar systems. The export curbs are presented as part of a longer-term approach to use critical raw materials in global power dynamics.
Beijing’s position in rare earth processing is central to the reported leverage. Control of 90% of the world’s rare earth processing is cited as enabling supply throttling. In 2025, exports of permanent magnets to the United States fell by 92%, while shipments to Southeast Asia—including Malaysia and Thailand—were halved.
EUCCC figures on rare earth licence approvals
Europe’s exposure is reflected in reporting by the EU Chamber of Commerce in China (EUCCC). By September, Beijing had approved just 19 of 141 rare earth export licence requests. European industries were described as uncertain about why they were being affected during U.S.-China trade tensions.
Analysts attribute the restrictions to multiple objectives connected to China’s policy goals. These include strengthening domestic resilience, tightening foreign dependence, and seeking concessions related to trade, technology, and political issues.
Licensing requirements and negotiation leverage
One mechanism described involves industrial espionage through licensing requirements. European firms seeking export licences must disclose sensitive technical data, which can allow Beijing to map industrial and military supply chains. The same reporting says this disclosure can help infer the composition of high-value components such as semiconductor wafers.
A second mechanism is described as strategic leverage in negotiations. Ahead of an EU–China Summit, Beijing offered preferential “green-list” access to rare earths conditional on the EU easing tariffs on electric vehicles and medical devices.
Supply shortages, production shutdowns, and relocation plans
The restrictions also affect operating capacity through supply constraints. Supply shortages are cited as forcing European automakers and electronics producers to halt operations. EUCCC recorded seven plant shutdowns in August, with 46 more expected in September, alongside spiking prices for key materials outside China.
To reduce disruption risk, some companies are considering relocating high-value production to China. This step is described as reinforcing the dependence Europe is seeking to avoid.
Defense-related impacts and constraints on R&D
Another set of effects concerns security-related supply flows. Reporting states that Beijing cut off supplies to European and U.S. defense manufacturers while continuing shipments to Russia. This is described as occurring amid heightened regional threats.
The same material constraints are linked to technology development limits. Limited access to advanced materials is said to stifle research and development in areas including radar systems, quantum computing, and next-gen electronics. The reporting connects these constraints with reduced ability for NATO to counter China and Russia’s industrial advantage.
Bilateral deals among allies and deterrence through inputs
The restrictions are also described as affecting alliance coordination among Western countries. With access sought separately, Western nations pursued bilateral deals with Beijing, which is said to threaten transatlantic unity. The U.S. ban on reexports of Chinese magnets to NATO allies is cited as deepening that divide.
Finally, Beijing’s control over vital inputs—from semiconductors to pharmaceuticals—is described as functioning as a geoeconomic deterrent. The reporting says this raises the cost of opposing China’s territorial ambitions or coercive policies by increasing dependence on controlled supplies.
EU critical raw materials policy implementation
The EU response referenced in the reporting focuses on implementing its Critical Raw Materials Act (CRMA). It also includes accelerating domestic mining and recycling projects and forging strategic partnerships with allies such as Canada and Australia. Experts cited in the reporting say these steps must be paired with reindustrialization efforts.
The reindustrialization focus mentioned includes competitiveness in clean tech, semiconductors, and advanced manufacturing. The reporting also contrasts headline-grabbing tariff issues with what it describes as a longer-term threat tied to weaponization of supply chains.