China's recent export controls on rare earth elements (REEs) have created significant challenges for European importers, who are grappling with an intricate and opaque licensing process. Since the imposition of these controls in April, many companies have faced prolonged delays in their applications, raising concerns about whether these setbacks are due to bureaucratic inefficiencies or a strategic maneuver by Beijing. With China supplying 95 percent of Europe’s strategic raw materials, the slow approval process serves as a geoeconomic lever, allowing China to disrupt European production without formally denying licenses. This situation underscores the critical dependence of European industries on Chinese REEs, particularly in sectors like defense and technology, where alternative sources are limited.
The implications of China's export licensing system extend beyond mere compliance headaches for European companies; they reflect a broader strategy of economic leverage. The new regulations grant Beijing unprecedented control over the flow of REEs, with a focus on preventing military applications and ensuring traceability. While some companies have begun to receive approvals, the process remains selective, favoring low-risk civilian sectors. This selective approval strategy not only creates uncertainty for European defense contractors but also allows China to manipulate market conditions, driving up prices and disrupting industrial planning. As Beijing continues to refine its export controls, European industries must navigate this complex landscape, balancing compliance with the need for strategic autonomy in critical raw materials.
