|
Brussels, |
|
Trade War 2.0: The Battle for Critical Minerals
As tensions rise between global powers, the EU and U.S. move to secure critical minerals for defence, new technologies and green transition, challenging China’s dominance in the sector. The new Critical Minerals Agreement could reshape transatlantic trade, while Beijing tightens control over exports—turning raw materials into the latest weapon in an escalating economic and geopolitical confrontation.
The EU and U.S. launched negotiations for a Critical Minerals Agreement (CMA) in 2024, aiming to secure essential raw materials for clean technologies and align EU supply chains with U.S. tax credit rules under the Inflation Reduction Act. But since then, the global landscape has shifted: China has imposed new export controls on rare earths, escalating a trade war that now centers on critical resources. As tensions grow, the EU and U.S. must rethink their strategy. What began as a regulatory workaround has become a geopolitical necessity—reshaping how the West competes with China in the race for industrial resilience.
By Paolo Licandro
Brussels, 28 April 2025 - 3 MINUTES READ
Brussels, 28 April 2025 - 3 MINUTES READ
In response to increased U.S. tariffs, China imposed export controls on seven rare earth elements, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These measures, requiring firms to apply for export licenses, have significant implications for global supply chains, especially for countries reliant on these materials for defense, electronics, and renewable energy sectors.
The export restrictions are not limited to the U.S.; they affect global markets, prompting concerns over supply chain vulnerabilities.
There are various types of export restrictions: non-automatic licensing, tariffs, quotas, outright bans.
The new China's restrictions are not a ban; rather, they require firms to apply for a license to export rare earths. These restrictions are undoubtedly affecting trade with the United States the most. However, these restrictions could also impact a political initiative that began under the Biden administration and included EU participation.
Previously, in 2023, the Council authorized the Commission to open negotiations with the United States on a Critical Minerals Agreement (CMA) and the related negotiating directives. This agreement seeks to strengthen critical minerals supply chains and mitigate some of the negative repercussions of the U.S. Inflation Reduction Act (IRA) on EU industry. As of early 2025, negotiations between the EU and U.S. on the Critical Minerals Agreement (CMA) have not yet concluded. Both parties continue to work towards an agreement that would strengthen critical mineral supply chains and align with the objectives of the U.S. Inflation Reduction Act.
The proposed CMA aims to:
On 23 May 2024, the EU's Critical Raw Materials Act (CRMA) entered into force, establishing benchmarks to increase capacities for extraction, processing, and recycling of critical raw materials within the EU. The Act aims to reduce dependency on third countries by ensuring that, by 2030, at least 10% of the EU's annual consumption of strategic raw materials is extracted domestically, 40% is processed within the EU, and 25% comes from recycled materials.
A U.S.-Japan CMA was signed in March 2023.
On other side, President Trump and President Zelensky—speaking separately—announced significant progress in negotiations over a minerals agreement, with plans to sign a memorandum soon. The agreement is intended to facilitate investment and economic development by channeling revenues from Ukraine’s resource exploitation into a joint investment fund. However, there has been no explicit mention so far of trade in rare or critical minerals—an omission that could yet be addressed, given the growing global urgency to secure access to these strategic resources. Also this Trump's initiative on uckainian minerals suggest the perception of a very critical situation on rare earths.
In a further move, China has increased state funding for domestic mineral exploration, aiming for greater self-sufficiency in strategic resources. This includes substantial investments in geological exploration and restrictions on foreign investment in critical resource mining.
Do China's Restrictions Change the EU Strategy?
Is the EU–U.S. Critical Minerals Agreement still relevant in light of China’s export restrictions and does it still make sense after Donald Trump’s announcement of new tariffs on EU goods? Can the EU-USA agreement deliver strategic value even though the U.S. is not a major exporter of critical raw materials to Europe? Could Trump, in fact, become more interested in the deal knowing that Europe might be the only Western partner still receiving rare earths from China? Might the CMA evolve from a trade facilitation tool into a geopolitical asset for both sides?
Commission's representatives told us that even after the latest wave of Chinese export restrictions, the European Union had strong incentives to strike a Critical Minerals Agreement (CMA) with the United States.
Why? The most immediate driver is regulatory: under the U.S. Inflation Reduction Act (IRA), generous tax credits for electric vehicles are only available if key components—like battery minerals—are sourced from the U.S. or countries with a Free Trade Agreement (FTA). The EU lacks such an agreement, and the CMA would offer a fast-track solution to ensure European materials and technologies remain eligible under these rules.
The subsidies under the U.S. Inflation Reduction Act (IRA) are granted by the federal government, primarily through the Internal Revenue Service (IRS), which administers the tax credits available to consumers and businesses investing in green technologies. These include incentives for electric vehicles, clean energy manufacturing, and battery production. The U.S. Department of the Treasury, in coordination with the Departments of Energy and Transportation, sets the technical criteria that determine eligibility. To qualify for the full electric vehicle tax credit, for example, a portion of the battery’s critical minerals must be sourced from the U.S. or a country with a Free Trade Agreement—or, potentially, a Critical Minerals Agreement.
While the subsidies benefit American consumers, the rules have significant implications for European industry: only companies operating within the approved supply chains can access the rapidly growing U.S. clean tech market, giving Brussels a strong incentive to secure a transatlantic deal.
But the rationale goes far beyond compliance. The agreement is part of a broader strategy to build a transatlantic partnership for the green industrial transition. While the U.S. remains heavily reliant on China for critical raw materials, it is investing billions to rebuild domestic mining and processing capacity.
EU Recognise 47 European Strategic Projects on Rare Earths
As the CTA is not the right instrument to ensure adequate supplies of rare earths for the EU’s objectives in energy transition, defense, artificial intelligence, and digital technologies, given the Union’s limited domestic availability of these resources.
To bolster its own capacities, the European Commission announced in March 2025 a list of 47 Strategic Projects under the Critical Raw Materials Act (CRMA). These projects, spread across 13 member states, aim to enhance the EU's capabilities in extraction, processing, recycling, and substitution of critical raw materials. The initiative targets 14 of the 17 strategic raw materials identified by the CRMA, including lithium, nickel, cobalt, graphite, and manganese.
The projects are expected to contribute to the EU's goals of meeting 10% of its annual. However, these efforts face the hard truth of time: results are not immediate, and bureaucratic delays, local resistance, and investment gaps risk slowing progress just as global competition accelerates.
The export restrictions are not limited to the U.S.; they affect global markets, prompting concerns over supply chain vulnerabilities.
There are various types of export restrictions: non-automatic licensing, tariffs, quotas, outright bans.
The new China's restrictions are not a ban; rather, they require firms to apply for a license to export rare earths. These restrictions are undoubtedly affecting trade with the United States the most. However, these restrictions could also impact a political initiative that began under the Biden administration and included EU participation.
Previously, in 2023, the Council authorized the Commission to open negotiations with the United States on a Critical Minerals Agreement (CMA) and the related negotiating directives. This agreement seeks to strengthen critical minerals supply chains and mitigate some of the negative repercussions of the U.S. Inflation Reduction Act (IRA) on EU industry. As of early 2025, negotiations between the EU and U.S. on the Critical Minerals Agreement (CMA) have not yet concluded. Both parties continue to work towards an agreement that would strengthen critical mineral supply chains and align with the objectives of the U.S. Inflation Reduction Act.
The proposed CMA aims to:
- Enhance Supply Chain Resilience: By diversifying sources of critical minerals, the agreement aims to reduce dependence on single suppliers and bolster the stability of supply chains.
- Facilitate Trade and Market Access: The CMA would enable critical minerals extracted or processed in the EU to qualify under the IRA’s Clean Vehicle Credit provisions, granting EU producers status equivalent to U.S. free trade agreement partners.
- Promote Sustainable Practices: The agreement emphasizes high environmental and labor standards, encouraging responsible sourcing and processing of critical minerals.
- Prevent Market Distortions: By fostering fair competition and market-oriented conditions, the CMA aims to counteract protectionist practices in the critical minerals sector.
On 23 May 2024, the EU's Critical Raw Materials Act (CRMA) entered into force, establishing benchmarks to increase capacities for extraction, processing, and recycling of critical raw materials within the EU. The Act aims to reduce dependency on third countries by ensuring that, by 2030, at least 10% of the EU's annual consumption of strategic raw materials is extracted domestically, 40% is processed within the EU, and 25% comes from recycled materials.
A U.S.-Japan CMA was signed in March 2023.
On other side, President Trump and President Zelensky—speaking separately—announced significant progress in negotiations over a minerals agreement, with plans to sign a memorandum soon. The agreement is intended to facilitate investment and economic development by channeling revenues from Ukraine’s resource exploitation into a joint investment fund. However, there has been no explicit mention so far of trade in rare or critical minerals—an omission that could yet be addressed, given the growing global urgency to secure access to these strategic resources. Also this Trump's initiative on uckainian minerals suggest the perception of a very critical situation on rare earths.
In a further move, China has increased state funding for domestic mineral exploration, aiming for greater self-sufficiency in strategic resources. This includes substantial investments in geological exploration and restrictions on foreign investment in critical resource mining.
Do China's Restrictions Change the EU Strategy?
Is the EU–U.S. Critical Minerals Agreement still relevant in light of China’s export restrictions and does it still make sense after Donald Trump’s announcement of new tariffs on EU goods? Can the EU-USA agreement deliver strategic value even though the U.S. is not a major exporter of critical raw materials to Europe? Could Trump, in fact, become more interested in the deal knowing that Europe might be the only Western partner still receiving rare earths from China? Might the CMA evolve from a trade facilitation tool into a geopolitical asset for both sides?
Commission's representatives told us that even after the latest wave of Chinese export restrictions, the European Union had strong incentives to strike a Critical Minerals Agreement (CMA) with the United States.
Why? The most immediate driver is regulatory: under the U.S. Inflation Reduction Act (IRA), generous tax credits for electric vehicles are only available if key components—like battery minerals—are sourced from the U.S. or countries with a Free Trade Agreement (FTA). The EU lacks such an agreement, and the CMA would offer a fast-track solution to ensure European materials and technologies remain eligible under these rules.
The subsidies under the U.S. Inflation Reduction Act (IRA) are granted by the federal government, primarily through the Internal Revenue Service (IRS), which administers the tax credits available to consumers and businesses investing in green technologies. These include incentives for electric vehicles, clean energy manufacturing, and battery production. The U.S. Department of the Treasury, in coordination with the Departments of Energy and Transportation, sets the technical criteria that determine eligibility. To qualify for the full electric vehicle tax credit, for example, a portion of the battery’s critical minerals must be sourced from the U.S. or a country with a Free Trade Agreement—or, potentially, a Critical Minerals Agreement.
While the subsidies benefit American consumers, the rules have significant implications for European industry: only companies operating within the approved supply chains can access the rapidly growing U.S. clean tech market, giving Brussels a strong incentive to secure a transatlantic deal.
But the rationale goes far beyond compliance. The agreement is part of a broader strategy to build a transatlantic partnership for the green industrial transition. While the U.S. remains heavily reliant on China for critical raw materials, it is investing billions to rebuild domestic mining and processing capacity.
EU Recognise 47 European Strategic Projects on Rare Earths
As the CTA is not the right instrument to ensure adequate supplies of rare earths for the EU’s objectives in energy transition, defense, artificial intelligence, and digital technologies, given the Union’s limited domestic availability of these resources.
To bolster its own capacities, the European Commission announced in March 2025 a list of 47 Strategic Projects under the Critical Raw Materials Act (CRMA). These projects, spread across 13 member states, aim to enhance the EU's capabilities in extraction, processing, recycling, and substitution of critical raw materials. The initiative targets 14 of the 17 strategic raw materials identified by the CRMA, including lithium, nickel, cobalt, graphite, and manganese.
The projects are expected to contribute to the EU's goals of meeting 10% of its annual. However, these efforts face the hard truth of time: results are not immediate, and bureaucratic delays, local resistance, and investment gaps risk slowing progress just as global competition accelerates.
Conclusion
The European Union’s effort to negotiate a Critical Minerals Agreement with the United States is no longer just about securing tax credits: it is a strategic response to an increasingly unstable global landscape. Ensuring access to critical raw materials is essential not only for achieving Europe’s climate goals but also for safeguarding its economic security and geopolitical relevance.
In a world where resources equate to power, supply chains have become political tools as much as logistical ones.
The growing weaponization of critical minerals—exemplified by China’s tightening control over rare earth exports—has exposed the EU’s structural vulnerabilities. Europe’s heavy reliance on imports for clean technologies, defense, and digital innovation places the continent at the mercy of powers whose values diverge sharply from those of democratic nations.
Faced with this reality, the European Union must act on multiple fronts. Signing agreements with trusted partners is not enough: Europe needs an integrated strategy that includes:
The 47 projects launched by the European Commission focused on exploration, refining, and recycling are a vital first step. However, the real challenge is speed: bureaucratic delays, investment gaps, and local resistance risk slowing progress just as global competition intensifies.
What is at stake is more than just industrial competitiveness: it is Europe’s ability to lead the energy transition and defend its strategic sovereignty in an era of economic fragmentation and rising geopolitical blocs.
The question is no longer whether to act—but whether Europe can move fast enough before the next supply shock reshapes the global balance of power once again.
In a world where resources equate to power, supply chains have become political tools as much as logistical ones.
The growing weaponization of critical minerals—exemplified by China’s tightening control over rare earth exports—has exposed the EU’s structural vulnerabilities. Europe’s heavy reliance on imports for clean technologies, defense, and digital innovation places the continent at the mercy of powers whose values diverge sharply from those of democratic nations.
Faced with this reality, the European Union must act on multiple fronts. Signing agreements with trusted partners is not enough: Europe needs an integrated strategy that includes:
- diversifying supply sources by investing in Africa, Latin America, and emerging regions;
- strengthening domestic mining and refining capabilities, with streamlined permitting processes, investment incentives, and solutions to overcome local opposition;
- promoting advanced recycling of strategic raw materials to reduce dependence on primary extraction;
- building European strategic reserves of critical minerals to withstand future supply shocks.
The 47 projects launched by the European Commission focused on exploration, refining, and recycling are a vital first step. However, the real challenge is speed: bureaucratic delays, investment gaps, and local resistance risk slowing progress just as global competition intensifies.
What is at stake is more than just industrial competitiveness: it is Europe’s ability to lead the energy transition and defend its strategic sovereignty in an era of economic fragmentation and rising geopolitical blocs.
The question is no longer whether to act—but whether Europe can move fast enough before the next supply shock reshapes the global balance of power once again.
Note: Trade policies and tariffs are subject to change due to new agreements, policy shifts, or trade disputes. For the most current information, it is advisable to consult all official Institutions.
|
|
|
