Beyond Trump: Xi’s price wars and weaponisation of critical raw materials threaten European prosperity

Critics blame Europe’s ‘summer of humiliation’ on the EU’s timidity in trade negotiations with President Trump. Yet the greater threat to European prosperity is Beijing’s two-front offensive against Europe’s industries. China provides unmatched state support for its industries, and shields them through local content requirements. Perhaps even more importantly, Beijing has invested strategically in the  ‘deep infrastructure’  that underpins industrial competitiveness — abundant and affordable electricity, roads, railways, efficient ports, and a skilled workforce. Mass exports of below market-price products are the result, driving European automotive, semiconductor and other key industries out of global markets. This is hollowing out Europe’s industrial base. 

Throughout 2025 President Xi opened a second geo-economic front. China sharply curtailed exports of a range of critical raw materials. European industries need these to produce anything from data centres, cars, pacemakers, radar systems, to fighter jets (see Table 1). President Xi has long emphasised the importance of developing these geo-economic ‘assassin’s mace’ technologies. These trump cards can overpower stronger adversaries at critical moments of strategic competition. 

Whenever Washington imposes tech export controls or tariffs on China, Beijing points its geo-economic guns at the US defence-industrial base (see Table 2). However, this year Xi Jinping sharply – albeit unevenly – reduced supply to a far wider range of countries. In May exports of permanent magnets to the US fell by 92%, while Beijing even reduced exports to Southeast Asia – Malaysia and Thailand – by half. The EU Chamber of Commerce in China (EUCCC) reports that as of early September Beijing had approved only 19 out of 141 EU rare earth licence requests. This left European policymakers and industry representatives perplexed: why punish us for Trump’s vices? But a closer look shows that Beijing’s sweeping use of this geo-economic weapon serves President Xi’s far more ambitious goals.  

Table 1: The stakes of Europe's critical raw material addiction

Xi aims to transform China into a self-reliant fortress, while tightening the world’s dependence on Chinese production. China’s expansion of its already unmatched manufacturing industries should tilt the military balance of power further in its favour. By binding rivals’ economies to Beijing-controlled supply chains, China seeks to make other powers think twice before resisting Xi’s pursuit of ‘core interests’. These include forcing ‘reunification’ with Taiwan and strengthening Communist Party legitimacy through protectionist economic policies designed to boost development. Beijing’s 2025 national security WhitePaper describes ‘advancing high-quality development’ as China’s ‘primary task’. Opposition to China’s economic policies is growing globally, while domestic demand remains lacklustre. In turn, Beijing’s capacity to maintain employment at home now depends increasingly on its ability to secure continued access to export markets for its below-market price goods.

In this single geo-economic tool, Beijing has in fact packed eight weapons.

Xi’s critical raw materials export controls contribute to all of these goals. In this single geo-economic tool, Beijing has in fact packed eight weapons. First, to receive controlled items, European producers must disclose commercially and militarily sensitive information, effectively supplementing China’s industrial espionage efforts. By tracking export volumes to companies, Beijing can deduce the material composition of sensitive European dual-use goods, such as the amount of gallium used in semiconductor wafers. Such ‘recipes’ have military value, as many weapon systems contain these chips. In more extreme cases, Beijing requires pictures of production sites and products, like drone motors. 

Likewise, Beijing maps European defence-industrial networks. Licence approvals depend on foreign component producers disclosing their customers, including defence industry end-users. This information is especially dangerous when combined with Beijing’s expanding infiltration into critical infrastructure, which facilitates future acts of sabotage. Brussels’ submission of priority licence requests provides China with clues as to which European companies may lack strategic stockpiles.

Second, China leverages control over vital supply chains to win unrelated concessions. In the lead-up to this summer’s EU-China Summit, Beijing dangled the prospect of ‘green listing’ rare earth supplies to European companies. The price? Removing EU tariffs on electric vehicles, relaxing local content requirements for medical equipment and easing other modest protections. This same tactic has helped Beijing broker a US-China trade truce and engineer a thaw in relations with India.

Third, export controls degrade the industrial capabilities of rivals. By heavily squeezing the supply of permanent magnets, Xi has forced European and American carmakers and other manufacturers to eat into inventories and halt production in a growing number of cases. According to the EUCCC, China’s rare earth controls alone caused seven production stoppages in August and a further 46 expected stoppages in September. The squeeze has led to material price spikes outside of China too, giving Chinese manufacturers another advantage over European competitors. 

Fourth, China’s weaponisation of critical raw materials risks deepening Europe’s dependence on Beijing. To prevent production shortfalls, some foreign companies have considered offshoring even more production to China, including of higher value-added goods. While semi-manufactured and finished products like engines and medical equipment can be shipped out of China without a licence, raw materials and magnets cannot. European producers of semiconductor wafers and even more strategic products face similar pressures.

Table 2: US-China action-reaction cycle: But why does Beijing squeeze material supply to Europe?

Fifth, Xi’s actions have put Europe’s territorial security at risk, albeit indirectly. China is in the process of pulling the rug out from under Europe’s rearmament efforts, just as the Kremlin steps up its aggression beyond Ukraine. Beijing has categorically denied export licences to European and US defence industries for key materials and components like permanent magnets, while it has continued to supply germanium to Russia.

Sixth, China’s critical raw material controls are likely to impose constraints on military-technological innovation within NATO and its Asian partners. To maintain deterrence in Europe and Asia, they must develop a high-tech response to Russia and China’s strong manpower and production capacity advantages. Access to a lower variety of materials limits experimentation avenues in cutting-edge research, particularly in emerging electronics. China’s supply squeeze risks imposing performance limitations on European radar systems, quantum computing, and other strategic technologies.

Seventh, Beijing’s export controls function as a wedge. To save their industries, China’s trade partners have sought quick bilateral fixes with Beijing. China has forbidden reexports of controlled materials to the US. This risks deepening transatlantic divisions. Obtaining magnets has become a central priority for Trump personally, including during the tense lead-up to the NATO Summit in The Hague. 

Eighth, China’s critical raw materials weapon also serves as a deterrent. Dependence on Beijing raises the costs for Europe and others of standing up against China’s aggressive pursuit of its territorial claims and resisting its coercive economic policies. The EU has rightly committed ‘to deterring China from unilaterally changing the status quo by military means’ around Taiwan. A conflict in the world’s manufacturing hub – East Asia – would be (economically) disastrous for Europe too. The European Commission is also developing policies to counter China’s ‘non-market practices’, and is exploring how to pursue these together with Washington. Better protection of allied markets would be a first step towards reducing China’s dangerous overconcentration of manufacturing power. But by exhibiting the supply chain pain that China can inflict, President Xi sends a clear signal: Beijing can tighten the economic thumbscrews at any time, perhaps even by blocking the supply of vital medicines. 

Europe’s critics overfocus on Trump, whose boisterous tweets catch the headlines. Xi cloaks his economic coercion in technical and diplomatic jargon. But his twin strategy of flooding markets with cheap goods while weaponising supply chains is far more dangerous. Dismantling Beijing’s critical raw material weapon requires a sweeping emergency policy package to wean Europe off Chinese supply as soon as possible, while building up Europe’s own geo-economic tools as a deterrent. Europe must combine this with a bold reindustrialisation agenda to salvage its prosperity.