Think Tank: EU Should Respond to Chinese Rare Earth Controls With Export Curbs, Tariffs
The EU should expand export controls over advanced technology and impose new tariffs against China to counter Beijing’s sweeping export curbs on rare earths (see 2510090021), a major European think tank said this week.
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The European Council on Foreign Relations urged the bloc to invoke its anti-coercion instrument against China, which allows the EU to impose countermeasures against countries in response to measures that it deems qualify as economic coercion (see 2303280024). The council noted that a qualified majority of member states must agree that the EU is being subjected to economic coercion before Europe can trigger the tool.
“If China’s recent actions do not meet that threshold,” the think tank said, “it is hard to imagine what ever will.”
If activated, the tool would allow the EU to choose from a “broad, flexible menu of options” to gain leverage in negotiations with Beijing, the council said, such as “import tariffs, services restrictions, export controls, suspension of IP rights, curbing access to finance, banking, or public procurement, or restricting foreign investors.” The council said those restrictions would be warranted because the new Chinese controls will have a “direct and enormous” impact on European companies, particularly in the defense sector.
The European defense industry, without Chinese rare earths and the products that contain them, “risks grinding to a halt as inventory shortfalls could leave it struggling to produce and deliver enough weapons for the war in Ukraine,” the think tank said. “Even if Europeans were able to secure access for their own companies, their large indirect dependence on US intermediaries means they cannot escape China’s coercive leverage.”
The think tank published its recommendations the same day Maros Sefcovic, the EU’s trade and economic security commissioner, announced that EU and Chinese officials would be meeting soon in Brussels to discuss the rare earth export controls (see 2510210027).
One option under the anti-coercion instrument would be to further tighten semiconductor supply chain chokepoints beyond shipments of the advanced extreme ultraviolet lithography machines made by Dutch firm ASML, the council said. It said “much of China’s semiconductor output still depends on older deep ultraviolet models” provided by EU-based businesses. “These machines are supplied and serviced by European companies whose maintenance and spare parts support could be curtailed in response to coercion, choking China’s chip output.”
The EU also can restrict exports of jet engines and advanced jet machine-tooling that China needs to build aircraft, the council said. It specifically pointed to compressor blades, aircraft structures and navigation systems, which are made by Italian and German companies, and high-precision computer numerical control machine tools -- used to make jet engine parts -- which are “dominated” by German and Japanese firms.
Export restrictions on European aircraft, including on future sales to China, “could be put on the table for a more direct and immediate impact,” the think tank said.
Although Beijing is already aiming to reduce its reliance on Western aviation parts, “clamping down on European exports would delay this process,” the council said. “Limiting their export or servicing could threaten production issues across advanced Chinese industries.”
The EU can also curb exports of specialty steel products, such as high-precision bearings used in turbines, electric vehicle drivetrains and machine tools, which are made by German and Swedish companies. The council said powdered superalloys, used mostly in the aerospace, power generation and industrial sectors, “remain significant Chinese imports,” so restricting those “could create significant pressure points, complicating Beijing’s ambitions for technological self-sufficiency and industrial expansion.”
The EU should also consider retaliatory tariffs against China, the council said, noting that China may be especially susceptible to new duties because its exports to Europe are up by almost 14% year-on-year. New duties on Chinese steel, wind turbines, electric vehicles, electronics and low-end consumer goods could “squeeze Chinese exporters,” the council said, and tariffs on telecommunication equipment, medical devices, machine tools and pharmaceutical products should also be considered.
“There are only so many developed markets in the world, and the EU should aim for reciprocity in areas where European companies face barriers in China,” the council said. Coordinating any new tariffs with the Group of 7 countries “would multiply the impact.”