Europe’s Race to Secure Critical Materials: A New Industrial Landscape
The first NdFeB blocks rolling off the production line at the new permanent magnet plant in Narva, Estonia, destined for electric vehicle motors and wind turbines, mark a pivotal moment. Simultaneously, Beijing’s updated export control rules for rare earths underscore a decades-long dominance. These two events highlight a growing tension: Europe’s push to rebuild critical value chains at home as the global trade landscape recalibrates amidst tariffs, strategic dependencies, and the relentless pursuit of industrial alternatives.
Germany-China Trade Imbalance: A Growing Dependency
Official data from Destatis confirmed a significant shift in 2025: China regained its position as Germany’s top trading partner with €251.8 billion in trade, surpassing the United States at €240.5 billion. German imports from China reached €170.6 billion (an 8.8% year-on-year increase), while exports totaled €81.3 billion (a 9.7% decrease), widening Germany’s trade deficit with Beijing to €89.3 billion. This reversal, following the US’s lead in 2024, demonstrates Europe’s continued reliance on Asian inputs, even as the trade climate becomes more challenging due to tariffs.
Analysis from The Guardian further illustrates this trend: €251 billion in Germany-China trade in 2025 compared to €240 billion for Germany-USA, impacted by new tariffs from the Trump administration. In 2025, German imports from China exceeded exports to China by a substantial margin (€170.6 billion versus €81.3 billion). Chancellor Friedrich Merz is preparing a mission to China to address vulnerabilities in critical raw materials.
Tariffs and Electric Vehicles: Europe Raises Barriers
In 2024, the European Union imposed definitive countervailing duties, exceeding 35%, on electric vehicles originating from China following an anti-subsidy investigation. On January 12, 2026, the Commission opened the door to “price commitments” from Chinese manufacturers, indicating a strategic approach to avoid a full-blown trade war. But, Europe continues to import batteries, components, and materials from China-dominated supply chains.
Beijing has repeatedly leveraged raw materials as a strategic tool, implementing export controls on gallium and germanium in 2023 and tightening licenses for graphite – crucial for lithium-ion battery anodes – in December 2023. These measures serve as a reminder that tariffs alone cannot guarantee supply when upstream bottlenecks exist.
Rare Earths: Europe’s Magnetic Achilles’ Heel
Rare earth elements are not inherently scarce, but their extraction and separation are complex, and costly. China currently controls nearly 90% of global refining capacity. For Europe, this translates to direct vulnerability in permanent magnets, defense applications, and electrification.
A first step towards addressing this came on September 19, 2025, with the inauguration of Neo Performance Materials’ plant in Narva, Estonia – the first industrial-scale NdFeB magnet facility in the EU, with an initial capacity of approximately 2,000 tonnes per year, scaling to 5,000. The EU currently imports around 22,000 tonnes of magnets annually, with 98% sourced from China. The Estonian plant is a starting point, not a complete solution, but signifies the building of European links in a previously almost entirely Asian chain.
Solvay has similarly reactivated and expanded its rare earth separation capacity at La Rochelle, France. The facility, the largest outside China capable of separating the entire rare earth family, inaugurated a new line dedicated to magnetic materials in 2025 and aims for a capacity of around 4,500 tonnes per year by 2030. This represents a rebuilding of process expertise within Europe, with improved environmental efficiencies.
Despite these efforts, signals from China remain significant. In 2025, Beijing adopted interim rules to consolidate and tighten controls across the entire rare earth supply chain, reinforcing the centralization of this strategic sector. The EU welcomed a temporary 12-month suspension of some export control measures, but this window is limited and structural dependency remains.
Lithium: The White Gold of the Andes, Rhine, and Allier
If magnets are the “heart” of electric traction, lithium is the “blood.” European actors are beginning to establish a presence in upstream and midstream lithium production. Eramet initiated production at its Centenario-Ratones project in Argentina in late 2024, utilizing direct lithium extraction (DLE) technology, targeting 24,000 tonnes per year of lithium carbonate at full capacity, with ramp-up in 2025 and initial shipments also in 2025. This marks the first industrial-scale lithium production by a European company.
In Finland, the Keliber project – controlled by Sibanye-Stillwater and Finnish Minerals Group – entered phased commissioning in 2026, with the mine and concentrator operational in Q1 2026. A decision on the refinery ramp-up is linked to market conditions, with a target of 15,000 tonnes per year of lithium hydroxide at full capacity.
The Barroso project in Portugal, led by Savannah Resources, received a positive DIA in 2023 but faces ongoing legal challenges, temporary suspensions, and increasing social conflict. The EMILI project by Imerys in France aims for 34,000 tonnes per year of lithium hydroxide by late 2028.
The Power of Treaties: From the CRMA to “Global Gateway” Partnerships
The EU’s guiding framework is the Critical Raw Materials Act (CRMA), which came into effect on May 23, 2024. Key benchmarks for strategic raw materials by 2030 include at least 10% from EU extraction, 40% from processing/refining, and 25% from recycling, with no more than 65% dependence on a single third country for each stage. In 2025, the Commission began selecting “strategic projects” and activating the Critical Raw Materials Board for stress tests and potential joint purchasing platforms.
Externally, the EU has established strategic partnerships for raw materials with Kazakhstan (2022) and Namibia (2022-2025 roadmap), and modernized its trade agreement with Chile, ensuring non-discriminatory access to lithium (currently approximately 80% of EU imports from Chile) and stringent environmental commitments. The goal is diversification: more routes, more partners, and more common standards.
FAQ
Q: What are rare earth elements?
A: Rare earth elements are a group of 17 metals crucial for various technologies, including magnets, electronics, and renewable energy systems.
Q: Why is China dominant in rare earth processing?
A: China invested heavily in rare earth processing infrastructure and has lower environmental regulations, making it a cost-effective location for refining.
Q: What is the CRMA?
A: The Critical Raw Materials Act is an EU regulation aimed at securing the supply of critical raw materials for European industries.
Q: What is DLE technology?
A: Direct Lithium Extraction is a technology used to extract lithium from brine resources with a lower environmental impact than traditional methods.
