Europe's raw materials transition and the RESourceEU plan – A continent at a crossroads: Europe's race against time

When strategic autonomy becomes an economic necessity: Why the EU plan to diversify critical raw materials could fail before it even begins

The announcement by European Commission President Ursula von der Leyen on October 26, 2025, marks a turning point in European economic policy. With the RESourceEU plan, Europe aims to break its existential dependence on Chinese raw material imports. However, the history of economic transformations teaches us that there is often a chasm between political will and economic reality. The EU faces the challenge of building, within just a few years, a supply structure that China has systematically developed over decades. The question is no longer whether Europe must act, but whether it is already too late.

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Anatomy of a vulnerability: Europe's lifelines in China's hands

The announcement by EU Commission President Ursula von der Leyen in October 2025 of a comprehensive plan to move away from Chinese raw material imports is not an isolated economic policy decision. It is a belated admission of a structural problem that has developed over decades and now threatens the foundations of the European economy. The figures speak for themselves: 98 percent of the rare earth elements needed in Europe come from Chinese imports; for rare earth magnets, which are essential for electric motors and wind turbines, the dependency is over 90 percent. Germany imports two-thirds of its rare earth elements directly from China, while the figure for Europe as a whole is 46 percent.

This dependency extends across the entire value chain. China not only controls 70 percent of global mining, but also dominates refining with 85 to 90 percent and the production of downstream products such as permanent magnets with over 90 percent. The picture is even more dramatic in battery production for electric vehicles: China produces more than 98 percent of lithium iron phosphate active materials and, through ownership stakes in foreign mines, controls 29 percent of global lithium production and 32 percent of nickel production.

The strategic dimension of this dependence became glaringly obvious in October 2024 when China drastically tightened its export controls on rare earth elements. In addition to the seven rare earth metals already subject to controls in April, five more elements were added, including holmium, erbium, thulium, europium, and ytterbium. This means that twelve of the seventeen rare earth metals are now subject to Chinese export controls. The licensing requirement applies even to metal content as low as 0.1 percent, which covers virtually all relevant industrial products. Western governments interpret these measures as a direct response to US trade tariffs and as leverage in geopolitical competition.

The consequences for European industry are immediately apparent. Without rare earths and critical raw materials, there can be no energy transition, no digitalization, and no defense autonomy. A modern 10-megawatt wind turbine requires two tons of neodymium. Every electric car contains approximately 450 grams of rare earth metals for permanent magnets, as well as an average of 12 kilograms of lithium, 4 kilograms of cobalt, and 39 kilograms of nickel in the battery. EU demand for rare earths will increase sixfold by 2030, and for lithium, 12-fold. This surge in demand is meeting a supply structure controlled by a single country.

The economic dimension far surpasses the energy issue. While Europe was able to drastically reduce its dependence on Russian energy within two years following the Russian attack on Ukraine, the EU still imported over €200 billion worth of fossil fuels from Russia between 2022 and 2025. Comparable diversification is considerably more difficult with critical raw materials because China is not only a supplier but also a processor and technology leader. The EU spends nearly €100 billion annually on fossil fuel imports, but dependence on critical raw materials threatens industries worth many times this amount: the automotive, defense, aerospace, electronics, and renewable energy sectors together represent a significant portion of European economic output.

The RESourceEU plan, which von der Leyen intends to model on the successful REPowerEU program, envisions a combination of recycling, diversification of supply sources, and the development of domestic processing capacities. Partnerships with Ukraine, Australia, Canada, Chile, Kazakhstan, Uzbekistan, and Greenland are meant to break Chinese dominance. The challenge is immense: it's not about replacing one supplier with another, but about building complete value chains that China has systematically developed over decades. The analysis must determine whether this plan has realistic prospects for success or whether Europe is entering into a new form of dependency.

From Californian monopoly to Chinese empire: The story of a global power shift

Today's Chinese dominance in critical raw materials is no accident, but the result of decades of strategic planning. Paradoxically, the story begins not in China, but in the United States. Until the 1980s, the US dominated the global rare earth market. The Mountain Pass mine in California produced the majority of the world's rare earth metals between 1965 and 1995, supplying 70 percent of the global supply. The mine was operated by Molycorp, a company that became synonymous with American resource security.

The decline began in the 1990s for two reasons. First, the mine caused significant environmental damage. Between 1996 and 1998, several leaks of radioactive and heavy metal-laden wastewater led to costly remediation measures and ultimately to its closure in 2002. Second, China had systematically built a parallel industry that drove Western producers out of the market with lower prices. The Chinese advantage rested on three pillars: laxer environmental regulations, government subsidies, and significantly lower labor costs. While German labor cost around US$45 per hour, Chinese wages were only US$7. Over 99 percent of publicly traded Chinese companies received direct government subsidies, which, according to conservative estimates, were three to four times higher than Western subsidies.

The strategic shift occurred in the 1990s under Deng Xiaoping, who recognized that rare earth elements could become a political tool. China possessed approximately 37 percent of the world's reserves, primarily in the Bayan Obo mine in Inner Mongolia. This deposit contains 8 to 12 percent rare earth oxides, the highest concentration found anywhere in the world. Through massive investments and systematic knowledge building, China succeeded in dominating not only extraction but also processing. Today, the country holds numerous patents for separation processes and is considered a technology leader in refining.

The consolidation of China's market power occurred in several phases. Between 2005 and 2011, China drastically reduced its export quotas, leading to the so-called rare earth crisis in 2010. Prices for neodymium and dysprosium multiplied as China imposed temporary export embargoes, particularly with Japan following a territorial dispute. After a complaint to the World Trade Organization, China lifted formal export quotas in 2015 but retained de facto control through export taxes, domestic production quotas, and strategic reserves. Further consolidation took place in 2021 with the creation of the China Rare Earth Group, which consolidated several state-owned mining companies and placed the industry under direct government control.

In parallel, China secured global control over the entire supply chain through investments in foreign mines. In the case of lithium, Chinese companies like Tianqi Lithium control 29 percent of global production, even though 74 percent of the world's lithium comes from Australia and Chile. In Indonesia, the largest nickel producer, Chinese firms like Tsingshan control 86 percent of production, while local companies hold less than five percent. In the Democratic Republic of Congo, which produces 68 percent of the world's cobalt, China and Europe share control, each holding 47 percent.

For decades, European passivity was based on the illusion of cheap and stable supply chains. European companies outsourced environmentally damaging extraction to China and profited from low prices. This strategy worked as long as China acted as a reliable supplier. Beijing's strategic shift under Xi Jinping from 2012 onward fundamentally changed this calculation. China began using critical raw materials as geopolitical leverage, initially subtly through quota systems, and later through explicit export controls.

The EU first recognized the problem in 2011 with its initial list of critical raw materials. This list grew from 14 raw materials in 2011 to 34 in 2023. The Critical Raw Materials Action Plan, published in 2020, was a first attempt at structured countermeasures. However, it was the Critical Raw Materials Act of 2023, which entered into force in May 2024, that set binding targets: By 2030, at least 10 percent of the EU's demand should come from domestic extraction, 40 percent from European processing, and 25 percent from recycling. Furthermore, no more than 65 percent of any single strategic raw material may originate from a single third country.

Historical analysis shows that Europe's dependence is the result of deliberate economic policy decisions made over decades. China exploited Western shortsightedness to systematically build a monopoly. Attempting to reverse this structure within a few years is like trying to replace an ecosystem that has developed over decades overnight. The question is not whether Europe needs to become more independent, but whether there is still enough time.

The Logic of Dominance: Why the Commodities Market Works Differently

The market structure for critical raw materials differs fundamentally from conventional commodity markets. While multiple suppliers exist for crude oil or iron ore, allowing for substitution, a quasi-monopoly structure prevails for rare earths and strategic metals. China controls not only production but the entire value chain from the mine to the finished product. This vertical integration creates dependencies that cannot be resolved through simple diversification.

The economic drivers of this structure are manifold. The most important factor is economies of scale in processing. The separation and refining of rare earth oxides is a complex chemical process requiring substantial capital investment and specific expertise. Over decades, China has not only built up production capacity but also optimized processes and secured patents. Western companies seeking to enter the market today must catch up with this knowledge advantage while competing against subsidized Chinese rivals.

A second driving factor is the environmental cost. The extraction of rare earth elements is one of the most environmentally damaging mining processes in existence. Large quantities of highly toxic acids are used for extraction, radioactive waste is generated through the release of thorium and uranium, and toxic sludge is left behind. In the Bayan Obo region of Inner Mongolia, environmental damage has reached catastrophic proportions. A huge reservoir containing slightly radioactive sewage sludge lies just ten kilometers from the Yellow River and is seeping towards the river at a rate of 300 meters per year. Entire areas have become uninhabitable, groundwater is contaminated, and desertification of the Mongolian steppes is progressing rapidly. In 2024, the UN listed Bayan Obo as one of the 50 most polluted regions in the world.

These environmental costs explain China's cost advantage. While Western countries have strict environmental regulations that make mining more expensive or impossible, China accepted this externalization. The social cost is borne by the local population, especially Mongolian nomads whose livelihoods have been destroyed. This cost structure makes it virtually impossible for Western producers to be competitive without either lowering environmental standards or receiving massive subsidies.

A third factor is demand-side development. The need for critical raw materials is increasing exponentially due to two megatrends: the energy transition and digitalization. A modern ten-megawatt offshore wind turbine requires two tons of neodymium. The EU plans to massively expand its wind power capacity by 2030. With an average requirement of 0.2 tons of neodymium per megawatt of installed capacity, every additional gigawatt of wind power translates to a demand of 200 tons of neodymium. The dynamics are similar for electric vehicles. A 60 kWh battery contains five kilograms of lithium, five kilograms of cobalt, 39 kilograms of nickel, and five kilograms of manganese. The EU aims for a de facto ban on combustion engines by 2035. This means millions of additional electric vehicles, each with a raw material requirement many times greater than that of a combustion engine vehicle.

The players in this market have asymmetric interests. On the Chinese side, there is a coordinated state actor that plans for the long term and uses raw materials as an instrument of power. The consolidation of the sector into six large state-owned enterprises since 2021 underscores this strategy. On the European side, private companies with quarterly horizons and pressure for profitability dominate. Building domestic mines and refining capacities is capital-intensive, risky, and takes years or even decades. Investors demand returns that are difficult to achieve under current market conditions. The state must therefore act as a risk hedger and financier, which is politically controversial and fiscally burdensome.

Market mechanisms exacerbate this asymmetry. China can manipulate prices through export restrictions and quotas. Between 2010 and 2011, rare earth metal prices multiplied when China curbed exports. Such volatility makes investing in Western production capacity riskier. A company investing in a mine or refinery today must expect China to lower prices tomorrow to eliminate its competitor. This strategy has worked multiple times. Molycorp, the operator of the Mountain Pass mine, went bankrupt in 2015 after China relaxed export quotas following the end of the 2011 price crisis, causing prices to plummet.

The strategic lever created by the EU with the Critical Raw Materials Act attempts to disrupt these market mechanisms. Setting targets for domestic extraction, processing, and recycling is intended to provide planning certainty. Limiting dependence on a single country to a maximum of 65 percent sends a political signal. However, these regulations will only be economically effective if investment incentives, financing instruments, and risk mitigation measures are simultaneously established. The RESourceEU plan must therefore go beyond supplier diversification and rebuild the entire value chain. The question is whether the EU has the necessary resources, political will, and time.

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Beyond import statistics: The hidden depths of European dependency

A quantitative analysis of the current supply situation reveals the scale of the challenge. In 2024, Germany imported a total of 5,200 tons of rare earth elements worth €64.7 million, representing a decrease of 12.6 percent compared to 2023. Of this amount, 65.5 percent came directly from China, amounting to 3,400 tons. The second most important country of origin was Austria with 23.2 percent, followed by Estonia with 5.6 percent. However, this statistic is misleading, as rare earth elements are only processed further in Austria and Estonia; their original origin is not statistically verifiable, but is likely also largely China.

A similar picture emerges at the EU level. In 2024, the entire EU imported 12,900 tons of rare earth elements worth €101 million. 46.3 percent came from China, 28.4 percent from Russia, and 19.9 percent from Malaysia. Given the war in Ukraine, dependence on Russia is politically unacceptable, and Malaysia also primarily processes Chinese raw materials through the company Lynas. Therefore, China's actual control is significantly greater than the official import statistics suggest.

For certain elements, the dependency is even more extreme. In 2024, 76.3 percent of lanthanum compounds, needed for batteries, came from China. Neodymium, praseodymium, and samarium, essential for permanent magnets in electric motors, were almost entirely imported from China. These elements are irreplaceable; without them, no modern wind turbine or electric vehicle can be built.

While import volumes are relatively small in absolute terms, their strategic importance is immense. The highest volume in the last ten years was 9,700 tons for Germany in 2018. The decline to 5,200 tons in 2024 does not reflect successful diversification, but rather economic weakness and production problems in European industry. The International Energy Agency forecasts that EU demand for rare earth elements will increase sixfold by 2030, for lithium twelvefold, and for cobalt fivefold. This increase in demand is meeting a supply structure that is almost entirely controlled by China.

The challenges extend beyond import-export statistics. A key problem is the lack of domestic processing capacity. Europe has virtually no facilities for separating and refining rare earth oxides. The only significant capacities outside of China are found in small pilot plants in Estonia and, to a lesser extent, in France, but these are negligible in terms of volume. Building such facilities takes years and requires billions in investment. Even if Europe finds alternative suppliers like Australia or Canada, the raw materials would still have to be shipped to China for processing, which merely shifts the dependency without solving it.

A second problem is recycling. Currently, only about one percent of rare earth elements are recycled. The reasons are both technical and economic. Permanent magnets are permanently installed in end products and difficult to dismantle. The chemical processing required to recover the metals is complex and expensive. Many products containing high concentrations of rare earth elements, such as electric car batteries and magnets in wind turbines, are still in use and years away from being phased out. An effective recycling system could cover 25 percent of the EU's demand in the long term, but its development will take decades.

The diversification of supply sources envisaged in the RESourceEU plan faces practical limitations. Ukraine possesses significant deposits of lithium, graphite, titanium, and 22 of the 30 raw materials classified as critical by the EU. However, many deposits are located in contested areas in the east of the country, and infrastructure has been destroyed by Russian attacks. Greenland has one of the world's largest deposits of heavy rare earth elements, but the deposits are located far from any infrastructure, some beneath glaciers. Development costs are estimated at up to US$2.3 billion, and not a single mine is currently operational.

Chile is the world's second-largest lithium producer, and the EU entered into a strategic raw materials partnership with the country in 2023. However, industrial cooperation has fallen short of expectations. Chile aims for greater local value creation and does not want to be merely a raw material supplier. The EU must therefore invest in Chilean processing capacities, which ties up time and capital. Australia extracts 53 percent of the world's lithium, but Chinese companies control 29 percent of production through stakes in Australian mines. Diversification thus only partially shifts the dependency from the extraction level to the ownership level.

The current situation has been exacerbated by China's latest export controls, introduced in October 2024. The requirement for licensing even with a metal content as low as 0.1 percent affects virtually all relevant industrial products. Companies must share sensitive information with Chinese authorities before receiving an export permit. This procedure takes months and creates massive uncertainty. European automakers and suppliers are already warning of production cutbacks. Prices for dysprosium, terbium, and yttrium have reached record levels on the spot market.

The quantitative assessment shows that Europe is in a situation of strategic vulnerability that cannot be resolved in the short term. Even with immediate and decisive action, it takes years to develop new mines, build processing capacities, and establish recycling systems. The targets of the Critical Raw Materials Act for 2030 are ambitious, but reality shows that the development of domestic capacities is progressing more slowly than planned.

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From California to Kyiv: A look at the global battlegrounds of the resource war

The US experience with rebuilding its own raw material capacities offers important lessons for Europe. The Mountain Pass mine in California is a prime example. After its closure in 2002 and Molycorp's bankruptcy in 2015, MP Materials acquired the mine in 2017. With the support of Chinese investors, particularly the state-owned company Shenghe Resources, the mine was successfully restarted. By 2022, the mine was producing 42,000 tons of rare earth oxides annually, three times as much as under Molycorp. In 2024, production reached over 45,000 tons, covering approximately 15.8 percent of global demand.

However, its success was tied to a dependence on China. Approximately 80 percent of production was exported to China as concentrate for further processing because no refining capacity existed in the US. Shenghe Resources held an eight percent stake and was also the main customer. When China imposed steep tariffs and new export restrictions in 2025, MP Materials halted all shipments to China and invested nearly one billion US dollars in building its own processing facilities. The company also established a joint venture with Saudi Arabia's Ma'aden to reduce its reliance on the Chinese market.

The lesson from this case is ambivalent. On the one hand, Mountain Pass shows that rebuilding domestic mining capacity is possible if sufficient capital and political will exist. On the other hand, the episode illustrates that mining alone is not enough. Without domestic processing capacity, dependence on China remains. Building this capacity takes years and costs billions. Moreover, the environmental issue remains unresolved. The Mountain Pass mine continues to be under close scrutiny due to potential environmental risks, particularly the disposal of radioactive waste and water pollution.

Furthermore, the US has created massive subsidies for critical raw materials through the Inflation Reduction Act of 2022. The law provides a production subsidy of ten percent of the cost of critical minerals, and even $35 per kilowatt-hour for battery cells. Tax credits of up to $7,500 are available for electric vehicles, but only if 40 percent of the battery raw materials originate from North America or free trade countries, with a gradual increase to 80 percent by 2027. From 2025 onward, critical minerals may no longer be sourced from China, Russia, or other "foreign entities of concern." This regulation forces US manufacturers to diversify but also creates trade conflicts with Europe, as European producers are disadvantaged.

A comparison with Australia reveals a different strategy. Australia is the world's largest lithium producer, accounting for 53 percent of global production. However, the country lacks a significant domestic processing industry. 74 percent of the world's lithium originates from Australia and Chile, but Chinese and US companies hold the largest shares of production. Australia benefits from raw material exports but remains at the bottom of the value chain. In 2024, the EU concluded a strategic raw materials partnership with Australia, encompassing the entire value chain from exploration and extraction to processing. However, concrete projects are still scarce.

Lynas, an Australian company, is the only significant producer of light rare earth elements outside of China. The company operates mines in Australia and a separation plant in Malaysia. Lynas receives substantial support from the US Department of Defense, which has pledged $30 million for a light rare earth separation plant in Texas. In 2023, Lynas became the first non-Chinese company to commercially produce a heavy rare earth element. This achievement demonstrates that breakthroughs are possible, but only with significant government support and over extended periods.

Chile offers insights into the complexities of raw material partnerships. In 2023, the EU signed a Memorandum of Understanding with Chile on a strategic raw materials partnership. Chile is the world's second-largest lithium producer and accounts for 25 percent of global copper production. The partnership envisions scientific and technological cooperation, infrastructure development, and joint ventures. A roadmap with concrete projects was agreed upon in November 2024. However, implementation is stalling. Chile is demanding greater local value creation and does not want to remain solely a raw material supplier. The EU must therefore invest in Chilean processing capacities, which requires synergies between raw materials, renewable energies, and hydrogen. Furthermore, the EU is competing with China and the US for access to Chilean resources.

Ukraine represents a special case. The country possesses one of the largest lithium deposits in Europe and 22 of the 30 raw materials classified as critical by the EU. Estimated lithium reserves amount to approximately 500,000 tons, but production has been halted due to the war. Many deposits are located in the contested regions of Zaporizhzhia and Donetsk, parts of which are under Russian control. After the war, Ukraine could play a key role in supplying Europe with raw materials and finance reconstruction from sales revenue. However, this requires a swift peace, massive investments in infrastructure and processing capacity, and years of reconstruction efforts. In the short term, Ukraine is not a solution to Europe's raw material problem.

The EU's Global Gateway Initiative aims to establish resource partnerships through investments in Africa and Latin America. Since 2021, the EU has entered into 14 strategic resource partnerships, including with Australia, Canada, Chile, Ukraine, Greenland, the Democratic Republic of Congo, and Zambia. These partnerships encompass resource processing, research, infrastructure development, and sustainability standards. However, implementation is slow, and few roadmaps are publicly available. The EU also faces competition from China's Belt and Road Initiative, which has made massive investments in African infrastructure over the years.

The case studies show that building domestic raw material production capacity is possible, but requires massive government support, long-term investment, and strategic patience. The US has mobilized billions with the Inflation Reduction Act; the EU must create similar instruments. Diversifying supply sources only works if processing capacities are built up simultaneously. Partnerships with resource-rich countries are necessary, but complex and time-consuming. Competition with China and the US for access to resources is intensifying. Europe must prove that it is a reliable partner that not only buys raw materials but also engages in genuine development cooperation.

The weak points in the plan: time, money, and unresolved conflicts of objectives

The ambitious goals of the RESourceEU plan encounter a number of structural obstacles and unresolved conflicts of objectives. The first problem is temporal in nature. The Critical Raw Materials Act sets targets for 2030, i.e., in five years. This timeframe is unrealistically short for establishing complete value chains. Developing a new mine takes an average of ten to fifteen years from exploration to production. Constructing refining plants requires five to ten years. Permitting processes in Europe are notoriously lengthy. Even if all political decisions were made today, the first quantities of domestic production would not reach the market until the mid-2030s at the earliest. The 2030 targets should therefore be understood more as a political signal than as realistic planning.

The second problem is financial. The European Commission estimates that implementing the Critical Raw Materials Act will require an additional €210 billion in investment by 2027. This sum is to come partly from EU funds, partly from national budgets, and primarily from private investment. However, private investors are hesitant as long as China can render new mines unprofitable at any time through price and quota manipulation. The Molycorp example demonstrates how quickly investments can be destroyed. Without government risk mitigation, sales guarantees, and long-term subsidies, private investment will not flow to the necessary extent. Furthermore, the EU is competing with the US, where the Inflation Reduction Act provides massive incentives with $400 billion.

The third problem is the conflict of objectives between climate protection and raw material extraction. The mining of rare earth elements is extremely environmentally damaging. In China, decades of mining in Inner Mongolia have led to ecological disasters. Radioactive sludge contaminates groundwater, rivers, and soil. The question is whether Europe is prepared to accept similar environmental damage, or whether stricter standards will increase production costs and make it unprofitable. Greenland, for example, banned uranium mining in 2021, which also affects rare earth projects, often associated with radioactive thorium. The balance between resource security and environmental protection is highly controversial politically.

The fourth problem is the recycling illusion. The Critical Raw Materials Act aims for a 25 percent recycling rate by 2030. However, the current rate is around one percent. While technologies for the efficient recycling of rare earth elements exist on a laboratory scale, they are not yet commercially established. Many products containing high concentrations of these elements remain in operation for years. Even if all decommissioned wind turbines and electric cars were recycled immediately, a significant quantity would not be available for another ten to twenty years. Recycling is essential in the long term, but it does not solve the short-term supply problem.

The fifth problem is competition for raw materials. Europe is in global competition with China, the US, and other industrialized nations. China already consumes 87 percent of the world's rare earth elements, 35 percent of nickel, and over 50 percent of lithium and cobalt. This demand will continue to rise because China is investing heavily in electromobility and renewable energies. The US, through the Inflation Reduction Act, secures preferential access to North American raw materials and free trade partners. Europe has less leverage. The Global Gateway Initiative is attempting to establish raw material partnerships through infrastructure investments in Africa and Latin America. However, China has already made significant upfront investments there over the years. The Belt and Road Initiative has invested billions in African infrastructure and forged close relationships. Europe must prove that it is a better partner, which will require time and money.

The sixth problem is political in nature. Diversifying from China to other suppliers such as Ukraine, Greenland, or African states creates new dependencies and geopolitical entanglements. Greenland is part of Denmark but is striving for greater autonomy. US President Donald Trump has repeatedly expressed interest in Greenland and has not ruled out military pressure. Ukraine is a war zone, and some of its raw material reserves are under Russian control. Partnerships with autocratic regimes in Africa and Central Asia raise ethical questions, similar to those surrounding the previous dependence on China. The EU risks slipping from one dependency to the next without gaining fundamental control over supply chains.

The seventh problem is the question of defense capability. Critical raw materials are essential not only for climate technologies but also for armaments. Electric motors in drones, electronics in missiles, alloys in engines—all require rare earths, titanium, nickel, cobalt, and other strategic metals. Dependence on China threatens European defense autonomy. In the event of conflict, China could halt deliveries and exert strategic blackmail on Europe. The RESourceEU plan must therefore also include a defense policy dimension, which further increases the complexity and the necessary investments.

The debate about the right approach is controversial. Proponents of an aggressive strategy are calling for massive state investment, subsidies, and, if necessary, protectionist measures such as import tariffs on Chinese manufactured goods. Critics warn of an escalation of trade conflicts that could harm Europe as a whole, because China would cease to be a market for European products. The automotive industry is caught in a dilemma: on the one hand, it needs secure raw material supplies, but on the other hand, it is dependent on the Chinese market. A trade war would put European manufacturers in a bind.

Another controversy concerns the role of the state versus market mechanisms. Liberal economists argue that government intervention and subsidies lead to inefficiencies and misinvestments. They advocate for market-based solutions and warn against a resurgence of planned economies. Pragmatists counter that market mechanisms have failed with strategic raw materials because China itself is not a market participant but a state actor. Without government intervention, Europe remains at a disadvantage. The Critical Raw Materials Act is a compromise that sets targets but largely leaves implementation to the market. Whether this middle ground will work remains to be seen.

The critical assessment shows that the RESourceEU plan is necessary, but fraught with considerable risks. The timeframes are too short, the costs immense, and the conflicting objectives unresolved. Without decisive action, Europe remains vulnerable, but rash action could exacerbate the situation. Finding the balance between resource security, climate protection, economic viability, and geopolitical prudence is the central challenge.

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Five paths to the future: Possible scenarios for Europe's raw material supply

The development of the coming years will be determined by several scenarios, which are not mutually exclusive but may overlap in some respects. The first scenario is gradual diversification with limited success. In this case, the EU succeeds in gradually reducing its dependence on China, but not in overcoming it. New partnerships with Australia, Canada, Chile, and Ukraine supply additional raw materials, but processing remains largely in China. Europe builds its own refining capacities, which will cover approximately 20 to 30 percent of demand by the mid-2030s. Recycling reaches a rate of 15 percent by 2035. Overall, dependence on China falls from over 90 percent currently to approximately 50 to 60 percent by 2035. This would be a partial success, but it leaves Europe still vulnerable.

The second scenario is technological disruption through substitution. Research and development could lead to breakthroughs in materials that partially or completely replace rare earth elements. In permanent magnets, there are approaches to substituting neodymium with ferrite or other compounds, albeit with a reduction in performance. In batteries, the trend could shift towards sodium-ion batteries or solid-state batteries, which require fewer or different critical raw materials. Such innovations could reduce the demand for certain elements and structurally decrease dependence on China. However, these technologies are not yet ready for market, and the transition will take decades. Moreover, every new technology often creates new dependencies on other materials.

The third scenario is geopolitical escalation with supply disruptions. In the event of a conflict, for example over Taiwan, China could impose export bans on critical raw materials. This would paralyze European industry in the short term. Production chains for electric vehicles, wind turbines, and electronics would collapse. The economic damage would be immense, similar to the oil embargo of the 1970s. This scenario is a nightmare for European planners and the main driving force behind the RESourceEU plan. The EU would have to build up emergency reserves and organize storage, which is costly and practically difficult because many raw materials are imported as intermediate products that cannot be stored.

The fourth scenario is successful strategic autonomy. In this optimistic case, the EU achieves a comprehensive transformation of its raw material supply. It develops its own mines in Scandinavia, Greenland, and Central Europe, massively expands processing capacities, establishes recycling, and consolidates international partnerships. By 2040, Europe covers 40 percent of its needs through domestic extraction and processing, 30 percent through recycling, and only 30 percent through broadly diversified imports. However, this scenario requires political will, enormous investment, and time. It presupposes that Europe is prepared to accept environmental costs, pay subsidies, and plan for the long term. Given the political fragmentation of the EU and the short timeframes, the probability of this scenario is low, but not impossible.

The fifth scenario is the regional fragmentation of the global economy. Competition between the US, China, and Europe for raw materials leads to economic blocs, each building its own supply chain. The US secures control of North America, parts of Latin America, and selected Pacific partners. China controls Asia, parts of Africa, and the Middle East. Europe attempts to cooperate with Africa, Latin America, and Ukraine. This fragmentation reduces the efficiency of the global economy, increases costs, and slows down the energy transition. However, it also creates more stable, albeit more expensive, supply chains within each bloc. This scenario is a realistic development, the beginnings of which are already visible.

Potential disruptions could overlay or accelerate these scenarios. A first disruption would be a swift peace agreement in Ukraine with Western support for reconstruction. Within ten years, Ukraine could become a major supplier of raw materials to Europe. A second disruption would be regime change in China or a fundamental reorientation of Chinese policy, such as opening up the raw materials market or, conversely, further isolation. Both would fundamentally alter European strategy. A third disruption would be a technological breakthrough in energy storage or transport that structurally reduces the demand for rare earth elements.

The time dimension is crucial. The 2020s are the critical phase. If Europe does not make substantial progress by 2030, its dependence on China will be cemented because demand is rising exponentially. The next five years will determine strategic autonomy for the coming decades. The REPowerEU model shows that Europe can act quickly when pressure is sufficient. After the Russian attack on Ukraine, the EU reduced its gas imports from Russia from 47 percent in 2019 to below 20 percent in 2024. This success was based on diversification, LNG imports, energy savings, and the accelerated expansion of renewable energies. The RESourceEU plan must unleash similar momentum.

The role of technology is ambivalent. On the one hand, breakthroughs in substitution, recycling, or efficiency could reduce demand. On the other hand, every new technology, such as artificial intelligence, quantum computing, or advanced weapons systems, drives the demand for specific raw materials. The digitalization of all areas of life increases dependence on critical metals. Europe cannot simply grow its way out of this dependence; instead, it must actively develop alternatives.

The international dimension is crucial. The EU cannot solve the problem alone. Cooperation with like-minded partners such as the US, Canada, Australia, and Japan is essential. A “Critical Raw Materials Club,” proposed by the EU, could coordinate common standards, research, and emergency reserves. At the same time, the EU must maintain a dialogue with China to avoid escalation. Striking a balance between confrontation and cooperation is delicate, but necessary.

The outlook is mixed. Europe has recognized the challenge and taken initial steps. The Critical Raw Materials Act, the RESourceEU plan, and the raw materials partnerships are instruments that can be effective. However, time is short, costs are high, and conflicting objectives remain unresolved. The most likely scenario is gradual diversification with limited success, leaving Europe more vulnerable than necessary but less dependent than it is today. Strategic autonomy will be a long-term project spanning decades, not years. Europe must learn to live with uncertainty and actively manage risks.

Time to act: Imperatives for politics, business and investors

The announcement of the RESourceEU plan marks a long-overdue paradigm shift in European economic policy. For decades, Europe profited from the illusion of stable and inexpensive raw material supplies from China. This illusion has been shattered. The Chinese export restrictions of October 2024 are not a temporary measure, but part of a long-term strategy to use critical raw materials as a geopolitical instrument of power. Europe faces a choice between strategic autonomy and permanent vulnerability.

The analysis shows that the path to independence is arduous, costly, and lengthy. The Critical Raw Materials Act's 2030 targets are ambitious, but not unrealistic if decisive action is taken now. Ten percent domestic production, 40 percent European processing, and 25 percent recycling are achievable, but require investments in the hundreds of billions, decades of political consensus, and a willingness to accept environmental costs and social disruption. Diversifying to a maximum of 65 percent dependence on any one country is a sensible benchmark that creates resilience without the illusion of autarky.

The strategic implications for policymakers are clear. First, financing must be secured. The EU needs a raw materials investment program similar to the US Inflation Reduction Act, with subsidies, risk mitigation measures, and sales guarantees for private investors. The €210 billion estimated by the Commission is a minimum, not a maximum. Second, permitting processes must be drastically accelerated. The Critical Raw Materials Act stipulates 27 months for mining licenses and 15 months for processing and recycling facilities. These deadlines must be met, which requires reforms to national mining laws and environmental regulations. Third, recycling must be treated as a strategic priority. Product design must be geared toward recyclability from the outset, collection systems must be established, and research into recycling technologies must be massively promoted.

Business leaders also face new challenges. The era of stable and low raw material prices is over. Companies must diversify their supply chains, build strategic reserves, and invest in the development of low-resource or resource-substituting technologies. Long-term supply contracts with non-Chinese producers should be secured, even if they are more expensive. Collaboration with competitors in pre-competitive consortia for raw material procurement and recycling can create economies of scale and share risks.

The shift towards more raw materials presents both opportunities and risks for investors. Companies involved in mining, refining, or recycling will benefit from rising demand but also face significant regulatory and operational risks. Technology companies developing substitute solutions could achieve breakthroughs or be thwarted by technological limitations. The political dimension makes investments in critical raw materials more complex than in other sectors. Government subsidies and regulations can determine success or failure.

The long-term importance of this issue cannot be overstated. Critical raw materials are the foundation of the energy transition, digitalization, and defense capabilities. Without a secure supply, European climate policy will fail, digital sovereignty will remain an illusion, and strategic autonomy unattainable. Dependence on China is existentially more threatening than dependence on Russian energy because substitution is more difficult and demand is structurally increasing.

Historical comparisons with previous commodity crises show that transformations are possible, but they take time. The oil crises of the 1970s led to the diversification of energy supplies, increased efficiency, and the building of strategic reserves. This process took decades. The semiconductor supply crisis during the Covid pandemic led to investments in European chip factories, the effects of which will only become visible in the 2030s. The commodity transition follows the same pattern: Today's decisions determine tomorrow's security of supply.

The geopolitical dimension makes the challenge more complex. Europe must simultaneously compete with, cooperate with, and confront China. A complete break is neither possible nor desirable, because China remains a market, technology partner, and supplier of raw materials. Balancing dependency reduction with a constructive relationship is the central diplomatic task of the next decade. The RESourceEU plan should not be understood as a declaration of war against China, but rather as an insurance policy against strategic blackmail.

The final assessment is ambivalent. The RESourceEU plan is necessary, overdue, and fundamentally sound. The combination of diversification, recycling, domestic production, and international partnerships is the only path to greater resilience. However, its implementation is still pending. History is replete with well-intentioned plans that failed due to political resistance, financial constraints, or technical obstacles. Europe's success depends on whether the political will endures across legislative terms, whether the necessary investments are made, and whether the population is prepared to accept higher costs and environmental impacts.

The next five years are crucial. If Europe fails to make substantial progress by 2030, Chinese dominance will be cemented. The energy transition will become more expensive, slower, and more dependent on a country that uses raw materials as weapons. Strategic autonomy will remain unattainable. However, if Europe acts decisively now, this dependence can be gradually reduced. Complete independence is neither possible nor necessary. Resilience through diversification is the realistic goal. The RESourceEU plan is the first step on a long road. Whether Europe follows this road to the end will determine the competitiveness, security, and future viability of the continent.

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