The E.U. ‘Derisks’ Itself Into Another Disaster

The EU’s “derisking” advocates have finally brought the situation with China to a head. The problem for Ursula von der Leyen and the gang is that they have much less leverage than Beijing. And it’s showing:

“European Union is privately warning that there’s little it can do in the near term to compel China to ease export controls on critical rare earths, a move that’s caused major disruptions for Europe’s industry, including auto and defense manufacturers.”https://t.co/aWk1HA0N1H

— Shehzad Qazi (@shehzadhqazi) November 6, 2025

While China is suspending some export controls on critical minerals to the US, it’s not yet going as far as the Trump administration claimed it would, and it’s not yet clear that such leniency will extend to the EU. From Bloomberg:

Brussels may yet have some groveling to do before Beijing relents, and there exists the possibility that China may want to make an example of US allies and send a clear message about the Dutch theft of chip maker Nexperia from its Chinese owners at Washington’s behest and other ongoing provocations from the EU, such as the recent speech by Taiwan’s number two before the European Parliament. 

The EU’s current predicament highlights yet again the incompetency of the European political elite headed by Ursula. How is it that Europe is still so unprepared for such Chinese retaliation? It was nearly three years ago that Ursula stood before the Mercator Institute for China Studies and the European Policy Centre and declared the beginning of the grand derisking-from-China project. And here we are.

In theory there is nothing wrong with so-called derisking and the pursuit of other trading partners or autarky as long as the planners are competent and they actually have a workable plan. Sadly for EU citizens Ursula and company have neither. In reality, the derisking strategy—if one can call it that—laid out by Ursula two years ago was little more than signing the bloc up for a fight alongside Uncle Sam with little thought put into next steps when the situation goes south and/or Washington hangs Brussels out to dry.

Not only has the EU failed in the derisking attempt from China but it has simultaneously only increased its reliance on the US.

The rare earth conundrum is illustrative of the bloc’s rudderlessness. It also offers a cautionary tale for Washington, which is embarking on an “Operation Warp Speed” 2.0 to loosen China’s grip on rare earth refining. It’s ambitious, to say the least, and also doesn’t include other even more vital dependencies that guarantee Beijing leverage in future economic confrontations.

Derisking Failure

While Ursula started talking up the big China derisking plans all the way back in March of 2023 the EU didn’t pass any critical minerals legislation until more than a year later. In March 2024, the Council adopted the European critical raw materials act (CRMA), and the EU’s Net-Zero Industry Act (NZIA) entered into force on June 29, 2024.

The NZIA sets the ambitious goal of producing at least 40% of the EU’s annual deployment needs for strategic net-zero technologies domestically by 2030 and aims for a 15% global share in net-zero tech manufacturing by 2040.

The CRMA, on the other hand, aims for the EU to produce the following by 2030:

• at least 10% of the EU’s annual consumption for extraction
• at least 40% of the EU’s annual consumption for processing
• at least 25% of the EU’s annual consumption for recycling
• no more than 65% of the EU’s annual consumption from a single third country

It’s not going well. And coupled with Brussel’s insistence on poking the dragon, it’s a recipe for disaster.

First the NZIA. A European Parliament report from earlier this year notes how the EU is actually losing global share of net-zero tech:

While the roll-out of clean technologies is increasing in the EU, its global market share is falling and manufacturing is lagging behind. This is due to a combination of factors, such as high energy prices, import dependency on raw materials and key components, skills shortages and fierce international competition, fuelled by robust public support policies adopted by the EU’s main global competitors, such as China and the United States.

Let’s take a moment to really appreciate Ursula and company’s strategic genius here. They derisked from Russian energy, which is making their “clean” energy products more uncompetitive. And now in their effort to derisk from China and compete with China on clean tech, they’ve shot themselves in the foot again by jeopardizing access to rare earths needed in much of these clean tech products.

How’s the effort to secure other supplies of critical minerals going? Not well, of course.

The CRMA has helped the European Commission get around environmental laws and public opposition on a few projects that were long in the pipeline, but huge challenges remain.

Perhaps the largest is the lack of state largesse for the mining projects. Because such operations require so much time and investment and face the prospect of being undercut by dominant Chinese firms, they face a long road to profitability and are unattractive for investment.

Despite deposits in Norway, Sweden and Greenland, there are still no operational rare earth mines in EU territory, and the average timeline from discovery to production is 15.3 years.

EU research suggests it could diversify its supply by dramatically scaling up recycling to the point it could meet up to 30 percent of rare earth demand by 2030, but current recycling input rates remain below one percent. According to Mining-Technology, there is universal acknowledgment among industry players that the 2030 goals of the CRMA are out of reach.

The following is from late last year, but not much has changed in the meantime and highlights the huge gaps that need to be overcome:

And yet despite the lack of progress and the serious threat of being cut off by China, EU officials continued to escalate its economic confrontation with Beijing. European media like to present the bloc as an innocent bystander in the China-US economic war, but that’s not true.

China Briefing has a recent 15,000-word piece on escalation driven by Brussels in the trade war since just the 2024 EU elections, which includes repeated pressure from the European side for China to curtail or end its relationship with Russia over the war in Ukraine. Recently the EU proposed sanctions on Chinese buyers of Russian oil.

The EU tariffed Chinese electric vehicles, went after Shein and Temu, tried to stop a BYD plant in Hungary, levied fines against TikTok, bloc countries banned its DeepSeek AI, and the Dutch go ahead and try to steal semiconductor manufacturer Nexperia—although it looks like they are now retreating.

This should come as no surprise as back in January European Trade Commissioner Maroš Šefčovič openly stated that the EU was going to cooperate with the U.S. on economic confrontation with China.

To top it all off, the EU and individual nations have become increasingly vocal in support of Taiwan, Beijing’s reddest of red lines. And NATO nations send warships through the Taiwan Strait despite Chinese warnings. And now the European Parliament shockingly invites the number two leader in Taiwan to speak. It’s almost like they’re daring China to cut them off from rare earths permanently.

Meanwhile, through all this escalation the EU has failed to get its house in order.

A recent FT piece sums up the dire situation, which is eerily reminiscent to the bloc’s fateful decision to cut itself off from most pipeline Russian gas. The FT describes how Brussels is now “racing to develop stockpiling strategies” and how the EU has “finally woken up.”

On October 25, Ursula announced the EU would launch a joint purchasing and stockpiling effort (a concrete proposal for the package is expected soon), but how exactly is that supposed to work when in some cases the world’s sole supplier has cut you off? It doesn’t. Erik Eschen, chief executive of permanent magnet maker VAC Group told the FT it’s “too late” to stockpile because governments would struggle to get the required material “out of China.”

And that really sums up Ursula and company’s foresight on the issue. They unveiled a derisking roadmap two years ago, proceeded to accomplish nothing they set out to do except continuing to poke China. When Beijing responds they’re caught flat footed.

The great poetic justice in this situation is that for three years this has been the same crew lying to us that Russia is using chips from dishwashers and fighting with shovels, but it is now this very same group staring down the prospect of shortages as it tries to re-arm for a conflict they seem to crave with Russia. As the FT notes, “Beijing’s restrictions make it more difficult to secure minerals needed to produce military equipment as the bloc tries to re-arm.” Life’s little ironies.

Will the US Fare Any Better?

Maybe. Because if Washington is serious it might put real money behind the effort.  The Institute for Progress and Employ America are out with a report urging Washington to do just that, and they argue that “We have everything at our disposal to deal with the threat. America and its partners have the mineral resources necessary for a self-reliant supply chain. We know that only a non-traditional toolkit can address the market challenges.” They say four steps are needed:

1. Foster competition and innovation.

2. Work with international partners to build resilient supply chains outside of China

3. Reform permitting to restore predictability

4. Commit that national security-motivated US technology restrictions are non-negotiable.

Trump is now racing around signing rare earth deals with anyone willing. Australia, Malaysia, Thailand Japan, and Central Asia states. These are miniscule in the face of the challenge, and the problem remains: processing and keeping it financially viable. As even US outlet RFE/RL admitted: “It’s China’s monopoly of the processing [of rare earths] that is more important than the supply,” William Courtney, a former US ambassador to Kazakhstan and adjunct senior fellow at the Rand Corporation, told RFE/RL.

And while the Institute for Progress and Employ America claim that the US has everything at its disposal, is that true?

Separating and refining rare earths isn’t as easy as just throwing a bunch of money at the problem. As Rare Earth Exchange notes:

Separating and refining rare earth elements (REEs) at an industrial scale is far easier said than done. Many companies outside China boast novel separation technologies, but few have demonstrated true large-scale success. In fact, industry observers note an asymmetric knowledge gap: only a handful of seasoned experts in REE separation reside in the U.S. and Europe or Japan for that matter, while China has literally thousands of engineers with decades of experience.

Chinese authorities closely guard this expertise – for example, Beijing now requires rare earth firms to register their technical specialists and even confiscate passports to prevent sensitive know-how from leaking overseas, as we have reported (in fact, it’s been this way long before the trade war launched by President Trump’s second administration). The result is that Western nations face a steep uphill battle in catching up to China’s 90%+ dominance in rare earth processing.

There is a reason it took China decades and billions in investment to dominate the rare earth supply chain. All while Western leaders sat back and watched.

Where Are the Other Operation Warp Speeds?

While the focus is currently on rare earths, they are far from the only chokehold China has on products critical for the US and Europe. Even if the ‘West’ is able to magically scale up its rare earth production in a year’s time, where is the Operation Warp Speed 3.0 for pharmaceuticals, 4.0 for lithium-ion batteries, and 5.0 for mature chips?

Let’s just briefly note the drug issue. The US might import most from the EU and India, but where are they getting the ingredients from? China. As we noted in an April post:

…before Beijing threw in the towel on its zero-Covid policy, it was leading to shortages in the EU of medicines, ranging from children’s fever reducers to eye drops and antibiotics. About 80 percent of active pharmaceutical ingredients used in Europe and about 40 percent of finished medicines sold in Europe come from China or India. The EU joining the economic war against China could see a return to those days of shortages:

[China] is a major producer of older unbranded medicines that are routinely used in hospitals. Antibiotics, for example, have become increasingly outsourced to Asia, with China dominating. The country has cornered the market for the key ingredients that go into making penicillin. China also is a key exporter in other categories such as blood pressure drugs or painkillers.

And here’s more from China Observers in Central and Eastern Europe:

Data from 2021 show that approximately 95 percent of vitamin B1 and its derivatives imported into the EU came from China. Over 96 percent of the heterocyclic compounds with an unfused pyrazole ring, APIs used in many antibiotics, are also imported by the EU from China. An even higher dependency can be found for chloramphenicol and its derivatives, reaching over 98 percent. Chloramphenicol is a key substance for a wide-spectrum antibiotic used for severe infections that cannot be treated with other antibiotics.

Moreover, even when the active ingredients or the final drugs are manufactured in Western countries or in India, production often depends on imports of raw materials from China. For example, India imports about 70 percent of APIs from China, including those necessary for the production of antibiotics, paracetamol and drugs for diabetes and cardiovascular diseases. In fact, compared to India, China is able to produce APIs 20-30 percent cheaper, depending on the product, thanks to the availability of cheap raw materials. In addition to the production of the APIs, China is also a key supplier of excipients, meaning substances that improve, for example, the absorption, taste or physical properties of the drug.

The New York Times ran a piece on Tuesday focused on a shuttered generic drug making plant in Louisiana to highlight the fact that, as the story says, there is “not a financial incentive” to produce in the US when it’s far cheaper to rely on Chinese ingredients made by low paid laborers in India.

Decades of the US’ “best and brightest” organizing the world around their financial incentives are now coming home to roost.