European Central Bank analyses euro area vulnerabilities to China’s rare earth export restrictions

The European Central Bank published an Economic Bulletin analysis of how China’s export restrictions on rare earth elements could disrupt euro area supply chains and feed through to manufacturing output and inflation. It concludes that the euro area is highly exposed both through direct imports from China and through indirect reliance on third-country suppliers embedded in global value chains. China is estimated to produce 95% of the world’s rare earths and supplies 70% of the euro area’s rare earth imports, while many non-Chinese suppliers of rare-earth-containing products also depend on Chinese inputs. A network analysis of supplier-customer relationships suggests over 80% of large euro area firms are within three intermediaries of a Chinese rare earth producer; only a small number procure directly (examples cited include Airbus and BASF), while around a quarter rely on just one intermediary (including Volkswagen, Renault and Telefónica), often via US tech firms. The study also notes that China’s restrictions have already generated value-chain disruptions, with May shipments of rare earth magnets down by around 75% year on year and, by June, euro area imports from China below typical levels; delays in export licence processing contributed to disruptions, although European authorities negotiated to fast-track some licence approvals. Looking ahead, the ECB notes that current indicators do not point to imminent supply-chain pressures or price increases, but it highlights the need to monitor developments given the potential for cascading effects. The analysis points to network-based monitoring as a tool for identifying vulnerabilities and references calls to accelerate implementation of the European Union’s Critical Raw Materials Act to diversify sourcing and increase recycling.