Geology is generous. Rare earths are neither rare nor concentrated in a single corner of the globe. They are found in Australia, Brazil, India, the United States, and Scandinavia. And yet, more than 80% of major European companies are fewer than three intermediaries away from a Chinese producer, according to ECB data. A jet engine, an offshore wind turbine, an electric car battery: all pass, at one point or another, through a transformation chain that Beijing controls from end to end.

This dependency was not created by the subsoil. It was created by a patient and coherent industrial strategy that Europe watched take root without responding to it. The question is no longer geological. It is industrial, political, and it involves multiple generations of public decisions.

The Essentials

  • China ensures more than 85% of global rare earth refining, even though it holds approximately 48-49% of known global reserves, according to the IEA and the USGS.
  • More than 80% of major European companies are fewer than three intermediaries away from a Chinese rare earth supplier, according to the ECB.
  • China introduced export restrictions in 2023 on gallium and germanium, then in April 2025 on permanent magnets, without triggering a physical shortage: this is the signal of a calibrated weapon designed to weigh on negotiations.
  • The European Critical Raw Materials Act, adopted in 2024, sets an objective of 40% domestic processing by 2030 — a tight horizon and still insufficient means relative to the scale of the delay.
  • Experts from MERICS and the European Parliament estimate that it will take twenty to thirty years to correct structural dependency, even by mobilizing all available levers.

Refining: The Only Lever That Matters

One might think that owning mines is enough. The history of neodymium and dysprosium, two elements critical for permanent magnets in electric motors, shows otherwise.

Australia has been extracting rare earths for years through Lynas Rare Earths, one of the few significant producers outside China. But for refining, Lynas long spent in Malaysia, in a plant whose license remains politically fragile. The United States reopened the Mountain Pass mine in California in 2017, but the ore was still recently being shipped to China for processing due to lack of local infrastructure. This is the central lesson: extracting without refining means supplying raw material without capturing added value or building real sovereignty.

China understood this as early as the 1990s, when Deng Xiaoping compared rare earths to Middle Eastern oil. Beijing massively subsidized its refining capacities, accepted environmental costs that other countries refused, and built chemical and metallurgical expertise that is difficult to replicate. Result: a handful of Chinese provinces, Jiangxi leading the way, process nearly all global ore before it heads back to factories in Tokyo, Stuttgart, or Toulouse.

This monopoly on refining has a precious geopolitical virtue for Beijing. It allows action on flows without ever triggering a complete rupture that would justify a radical Western response. This is exactly the logic that Edward Fishman, a specialist in geoeconomics and economic chokepoints, describes in his work: an effective economic weapon is not one that destroys the adversary, but one that imposes a high enough cost to modify their behavior, without crossing the threshold that would provoke a symmetrical response.

A Calibrated Weapon, Not an Embargo

China’s restrictions on gallium and germanium exports, announced in July 2023, then restrictions on permanent magnets introduced in April 2025, perfectly illustrate this doctrine. Gallium is essential for power semiconductors and solar panels. Germanium enters into the production of fiber optics and military infrared equipment. Both are produced at more than 80% in China.

Prices jumped immediately after the announcement. But there was no physical shortage. Existing stocks played their buffer role. Alternative producers in Eastern Europe and Japan slightly increased their capacity. And above all, Western companies began to anticipate their supplies differently.

This is precisely the intended effect. A sharp shortage would have accelerated diversification investments. A gradual tightening, with sporadic exemptions and ambiguous signals, maintains dependency while demonstrating the capacity to make it weigh. The European Parliament, in its November 2025 analysis, qualifies this approach as “graduated economic coercion”: Beijing does not need to cut off supplies to exert pressure; it simply needs to make uncertainty sufficiently costly.

The distinction that some liberal economists make between interdependence and vulnerability takes on its full meaning here. A mutually beneficial trade relationship creates interdependence: both parties lose from rupture. An asymmetrical relationship creates vulnerability: one can threaten rupture without suffering as much as the other. Rare earths illustrate the second case. China exports added value; Europe imports industrial dependency.

What Europe Built, Late

The European response exists. It is real. And it shows approximately forty years of lag relative to the threat: China began building its strategy in the 1980s, while the EU only really treated rare earths as a priority after 2020.

The Critical Raw Materials Act, adopted in March 2024, is the most ambitious framework ever put in place by Brussels on this subject. It sets specific objectives: by 2030, the EU must extract at least 10% of its annual critical raw materials needs, process 40% on its territory, and depend on no third country for more than 65% of any given strategic material. These figures are politically courageous. They are also, for some MERICS experts, difficult to achieve within the announced timeframes.

The problem is not only financial, though the sums involved are considerable. Building a rare earth refining plant in Europe takes between seven and twelve years if one integrates environmental permitting phases, construction, and ramp-up. The regulation itself has provided for simplified approvals for strategic projects, with a target timeframe of twenty-seven months for priority projects. This is real progress compared to the previous situation. It is still slow compared to a competitor that subsidizes and deploys at a different industrial speed.

Nevertheless, several projects are underway. In Sweden, the Kiruna mine, already known for its iron ore, is about to see its rare earths commercially extracted by LKAB, the Swedish public mining company, which estimates its rare earth reserves among Europe’s largest. In Portugal, permits have been granted for lithium extraction and other minerals. In France, Carester laid the foundation stone for the Caremag plant in March 2025 at Lacq, in the Pyrénées-Atlantiques, Europe’s first heavy rare earth refining plant: it should process up to 25,000 tons of concentrates per year at full capacity.

These initiatives matter. They will not be enough to close the gap in a decade.

The European Purchasing Center: Changing the Scale of Negotiation

Facing a single supplier with a de facto monopoly on processing, the most immediately operational response is not to build competing plants in ten years. It is to change the scale of negotiation today.

This is the logic behind pooling purchases through a European critical raw materials center. The idea is simple: if Airbus, Volkswagen, Siemens, and ten other European industrialists buy their rare earths separately from different intermediaries, each negotiates from a weak position facing a coordinated supplier oligopoly. If the same companies pool their purchases through a common structure, they carry different weight in negotiations. They can also build common strategic stocks, smooth price shocks, and collectively finance supply chain audits.

This model is partially inspired by what the European Commission did for vaccine purchases during the pandemic, with the known defects and virtues. It is also inspired, at another scale, by the energy purchasing mechanisms that the EU put in place after 2022. The Commission proposed a framework for this type of pooling in the wake of the Critical Raw Materials Act. Discussions are underway with industrialists to define governance.

This is not a sovereignty solution. It is a resilience solution: it does not eliminate short-term dependency, it makes it less dangerous and creates conditions for gradual diversification. The distinction deserves to be stated clearly, at the risk of otherwise overselling an instrument that remains partial.

One can note a real tension here with the reading that economists like Philippe Aghion or Thomas Philippon make of competition and public intervention. Pooling purchases creates a collective purchasing power that can resemble a monopsony and raises questions of European competition law. The Commission explicitly provided exemptions for critical raw materials on grounds of economic security. This is a choice coherent with the situation, but one should not ignore that this type of derogation, once granted, tends to expand. The question of where legitimate industrial policy ends and market distortion begins is exactly what the debate between Krugman and Aghion on the same data illustrates at the macro scale.

Twenty to Thirty Years: The Generational Arc of the Problem

MERICS experts are clear on this point: correcting structural dependency on rare earths will take twenty to thirty years, even by simultaneously mobilizing all available levers. This estimate deserves to be taken seriously, not as a verdict of defeat but as a planning framework.

Twenty to thirty years means that investment decisions made in 2025 will produce their main effects around 2045-2055. It also means that politicians who vote today for budgets for refining plants will no longer be in power when these plants reach full capacity. This is the classic generational problem of major industrial infrastructure: costs are immediate, benefits are deferred, and electoral cycles do not align with industrial cycles.

This temporal asymmetry partly explains why Europe accumulated such considerable delay. It also explains why markets alone are insufficient to correct the problem: no single private company can internalize by itself the long-term geopolitical risk represented by dependency on a single supplier. This is exactly the argument that Acemoglu and Johnson develop in their work on technology and power: the gains from technological progress do not distribute themselves, they are captured, and correcting capture requires deliberate intervention.

The concrete trajectory looks like this: between 2025 and 2030, the first European refining plants ramp up, strategic stocks are constituted, and pooled purchases reduce vulnerability to price shocks. Between 2030 and 2040, if current mining projects in Sweden, Finland, and Greenland deploy as planned, Europe should be able to cover an increasing share of its extraction needs. Only between 2040 and 2050 could autonomy on refining become credible, provided that investments in rare earth separation chemistry, today nearly absent in Europe, are undertaken now.

This timeline rests on several assumptions that must be named: political and budgetary stability of member states over two decades, sustained demand for energy transition technologies, and absence of a technological breakthrough that would render certain rare earths obsolete. Demand for neodymium and dysprosium for permanent magnets is particularly conditional on the maintenance of current electric motor technology: if rare-earth-free alternatives develop, the geopolitical pressure would change in nature.

Europe also has a card that is sometimes underestimated. Its internal markets remain among the most competitive and most open in the world, which attracts diversification investments from Australian, Canadian, American, and African actors seeking access to this market. The dependency is real; it is not a foregone conclusion, and it involves actors who have interest in remedying it from the outside.

What Beijing Can Do, and What Europe Can Oppose

China’s 2023-2025 restrictions are not the final word. Beijing still has room for maneuver. It could reduce export quotas, introduce discretionary licenses sector by sector, or differentiate its restrictions by trading partner to create fractures in the European response. These scenarios are realistic. They are not inevitable: China also exports to its own downstream industries, established in free trade zones or through joint ventures with Europeans, and a complete embargo would rebound against its own economy.

The most effective European response is therefore not one that seeks to completely forgo China in the short term, but one that diversifies enough that the Chinese lever loses its precision. Supply that is 60% Chinese with credible 40% alternatives is geopolitically very different from 90% Chinese supply with no visible substitute: in the first case, Beijing knows its restrictions have an opportunity cost for it as well.

This is why partnerships with Canada, Australia, Kazakhstan, and African producing countries are more important than European plants alone. The Commission has signed strategic raw materials partnership agreements with around twenty countries since 2022. The materialization of these agreements into actual commercial flows remains the main unknown: moving from a framework agreement to an operational logistics chain requires years and investments that partner governments do not always have the means to carry alone.

The Global Gateway, the European infrastructure investment instrument in partner countries, theoretically mobilizes 300 billion euros by 2027. In rare earth-producing countries, it finances extraction and transport infrastructure as priority. This is useful. It does not resolve the question of refining in Europe, which remains the missing link in the chain.

The next decade will probably be decided on two simultaneous fronts: Europe’s capacity to meet its Critical Raw Materials Act objectives despite post-2027 budgetary constraints, and its capacity to coordinate its industrial response with its allies rather than entering into competition with them for the same resources. On this second point, tensions between the United States’ Inflation Reduction Act and Europe have shown that coordination between liberal democracies on industrial policy remains difficult, even facing a common competitor.

Dependency on rare earths is not a geology problem. It is a problem of long-term political will in systems designed for the short term. Europe has begun to respond. The question is whether it can hold the pace over an entire generation.

Sources

  1. European Parliament Think Tank — China’s Rare Earth Export Restrictions (November 2025): https://epthinktank.eu/2025/11/24/chinas-rare-earth-export-restrictions/
  2. MERICS — reports on European industrial dependencies and critical raw materials supply chains (2023-2025)
  3. International Energy Agency — Critical Minerals Market Review, data on global rare earth reserves and production
  4. European Central Bank — data on European companies’ exposure to Chinese suppliers
  5. European Regulation on Critical Raw Materials (Critical Raw Materials Act), Official Journal of the EU, March 2024
  6. Edward Fishman — Chokepoints: American Power in the Age of Economic Warfare, Penguin Press, 2024
  7. LKAB — communications on rare earth reserves identified at Kiruna, Sweden (2023-2024)
  8. Carester — announcement of the construction of the Lacq refining plant, Pyrénées-Atlantiques (2024)
  9. IEA – Rare Earth Elements Report 2025 (executive summary): https://www.iea.org/reports/rare-earth-elements/executive-summary
  10. Statista / IEA 2026 – Global Rare Earth Reserves: https://www.statista.com/chart/33754/countries-with-the-largest-known-rare-earths-reserves/
  11. EPRS European Parliament – Chinese Rare Earth Restrictions (2025): https://epthinktank.eu/2025/11/24/chinas-rare-earth-export-restrictions/
  12. European Commission – CRMA Official: https://commission.europa.eu/topics/competitiveness/green-deal-industrial-plan/european-critical-raw-materials-act_en
  13. MOFCOM Announcement No.23 / Mayer Brown – Gallium/Germanium Restrictions (July 2023): https://www.mayerbrown.com/en/insights/publications/2023/07/china-imposes-new-export-controls-on-two-minerals-critical-to-the-manufacture-of-semiconductors
  14. Carester – Official Press Release (March 2025): https://www.carester.fr/en/caremag-launch/
  15. CSIS – China’s Growing Threat to Gallium Supply Chains (2025): https://www.csis.org/analysis/beyond-rare-earths-chinas-growing-threat-gallium-supply-chains
  16. Lynas Rare Earths – Official Website: https://lynasrareearths.com/about-us/about-lynas-rare-earths/
  17. European Parliament – Legislative Train (CRMA): https://www.europarl.europa.eu/legislative-train/theme-industry-research-and-energy-itre/file-european-critical-raw-material-act