China’s rare earth curbs expose Europe’s supply chain weakness

Germany’s industrial sector is facing growing alarm over its rare earth supplies, months after China added heavy rare earth elements to its export control list in April. As inventories dwindle, production in key sectors — particularly automotive manufacturing — is at risk of grinding to a halt due to the critical role these materials play in technologies such as permanent magnets.

A new study by the Supply Chain Intelligence Institute Austria (ASCII), cited by German media, reveals that Europe’s dependency on Chinese rare earths is even more acute than previously thought, the result of years of political inertia.

While countries like Japan took decisive steps to reduce reliance on Chinese supply chains after Beijing imposed a temporary export ban in 2010, Europe largely failed to act, and is now more vulnerable to supply chain shocks than it was 15 years ago.

Funded by the Austrian Ministry of Economic Affairs, the ASCII research analysed trade flows from 170 countries and examined dependencies across 168 rare-earth-related product categories. The findings underscore the scale of Europe’s exposure: 98% of EU imports for products in the magnet value chain come from China. Beijing also controls 91% of global rare earth processing capacity, a figure that includes indirect and hidden risks embedded deep in international supply chains.

“The data we had until now only measured direct dependencies, such as how much rare earth is mined or refined in China,” explained Peter Klimek, director of ASCII. “What has been neglected are the systemic risks—Europe’s exposure to Chinese intermediate products like magnets, special ceramics, and alloys. A shortage in these could halt entire production lines.”

Of the 168 product categories examined, 77 are considered highly relevant to Germany’s export economy, with a combined annual export value of €65 billion in 2023.

The German automotive industry, especially the electric vehicle sector, is among the most threatened. Permanent magnets essential for EV motors consist of up to 30% rare earth elements. In 2023, Germany sourced 80% of its magnets directly from China. The rest came from countries that themselves depend heavily on Chinese inputs.

Germany’s direct imports of rare earth compounds also underscore the reliance: more than 70% came from China last year, according to data from the German Raw Materials Agency. A significant share also arrived via Austria’s Treibacher Industrie AG, which in turn sources around 90% of its raw materials from China. This confirms the core finding of the ASCII study: even when rare earths are not imported directly from China, their origin often traces back there.

Klimek noted that many firms remain unaware of how deeply their supply chains are entangled with China. “Surveys show that only 6% of companies know their supply chains down to the source,” he said.

Since April, some awareness is beginning to set in. A single refinery outside China has started pilot processing of certain heavy rare earths, but large-scale industrial capacity is still a distant goal. Meanwhile, China has built a commanding lead in rare earth processing know-how and pricing power. With control over magnet materials, Beijing can set prices that non-Chinese producers struggle to match, deterring competition.

One German firm, Remloy, which recycles rare earth magnets, cannot scale its operations due to a lack of demand. According to the ASCII study, less than 1% of magnet waste is currently recycled. Recycling and research into alternative materials are seen as key to reducing dependency.

Klimek also suggested introducing so-called “diversification tariffs” to incentivize companies to purchase from non-Chinese sources. “Such measures would force companies to price in the long-term risks of dependence,” he said.

Though Chinese rare earths may seem cheaper in the short term, the geopolitical costs are mounting. “The EU is making itself vulnerable to blackmail,” Klimek warned, adding that China is already leveraging its rare earth dominance as a geopolitical weapon. Without a shift in policy, Europe’s dependency on Chinese rare earths could still stand at 85% by 2040.

By Tamilla Hasanova