Why the EU Urgently Requires a Buyers’ Club for Critical Minerals

Reimagining Critical Minerals: The EU’s Path to Supply Chain Resiliency

Rapid Advancements and Global Demand

Rapid advancements in technologies and the global race to net-zero will continue to drive demand for critical minerals—the building blocks of modern technologies—for the foreseeable future.

China’s Control and EU’s Response

Already, China has used its advantageous position in supply chains to curb critical mineral exports. China’s commerce ministry in July announced that it would restrict exports of critical minerals such as germanium and gallium. Now, as global competition in critical minerals heats up—an anticipated four hundred billion dollar industry by 2050—shoring up capacity and de-risking critical minerals supply chains will be key for both the economic competitiveness and green agenda of the European Union (EU).

US-EU Cooperation

While the much-anticipated US-EU critical minerals agreement is still under negotiation, the Biden administration and von der Leyen commission have shown a willingness to move past the dispute over the Inflation Reduction Act. The EU and United States have already, for example, increased cooperation on critical minerals supply chains, such as the continued convening of the secure supply chains working group under the US-EU Trade and Technology Council, with a goal of addressing potential economic coercion by China.

The EU’s Challenge

Yet with future unknowns bedeviling US-EU trade relations—namely elections and divergent approaches on open trade—as well as China’s dominance in critical minerals mining and processing, the EU needs to swing into action. With estimates showing the EU’s mining industry is fifteen years behind Beijing and a staggering 98 percent of Europe’s rare earth metals are imported from China, there is a lot of ground for the EU to make up.

EU’s Response

This isn’t to say the EU is sitting idle. When the US Congress passed the Inflation Reduction Act in 2022, the blow to the EU’s green tech sector became a catalyzing moment. In March 2023, the European Commission announced the Critical Raw Materials Act mandating that at least 10 percent of EU critical raw materials be mined and 40 percent processed in Europe by 2030. The legislation is expected to accelerate permitting procedures for new mines and alleviate some of Europe’s capacity issues (though implementation won’t be easy nor happen overnight).

Seeking Strategic Partnerships

The EU is likewise pursuing new strategic partnerships on critical minerals in an effort to diversify its critical raw materials (CRM) supply chains. However, as the vast majority of EU imports of CRM are exempt from tariffs, new trade agreements alone offer little in terms of added benefits from new investments or economic incentives. The EU should pursue more ad hoc measures, particularly as Argentina throws a spanner in the EU-Mercosur trade pact and overall “fatigue” over stalled free trade negotiations in the EU sets in.

The Critical Raw Materials Club

One possibility for action is the EU’s forthcoming Critical Raw Materials Club for all like-minded countries, which seeks to strengthen the global CRM value chain in cooperation with allies and partners. At present, the Critical Raw Materials Club lacks structure, but it holds potential as a useful trade tool to pool investment into “resource rich” countries in the global value chain.

Leveling the Playing Field

Consequently, the Club should aim to place both the advanced economies of the EU and its allies on fairer footing with critical mineral exporters to prevent the former from unfairly exploiting the latter. This would ensure that critical mineral exporters should not have to choose between trade with the Club and their own economic development.

Working with Key Allies

Like the EU, the United States has been moving toward safeguarding its own supply chains. In May 2022, President Joe Biden announced the Indo-Pacific Economic framework (IPEF), a trade initiative meant to, among other priorities, strengthen supply chain resilience in the region. Taking it a step further, at the August 2023 Camp David Summit, the United States, Japan, and South Korea pledged to develop a pilot form of the IPEF supply chain Early Warning System (EWS) to share information on supply chain resiliency.

Deepening Cooperation

As such, along with the United States, the EU should welcome Japan and South Korea into the Club during its establishment. Given their position in supply chains to China, Japan and South Korea will face the impact of Chinese-led disruptions faster than the United States and the European Union, making them strong economic bellwethers. This is especially true for critical mineral supply chains. As Europe has had increasingly close trade relations with Japan and South Korea, inviting them both would complement their similar goals of securing critical mineral supply chains and avoiding competition with their allies.

Political Challenges

Taken together, there is much that the EU should take stock in for its work in supply chain resiliency including in cooperation with the United States. All things considered, the outcome of next year’s US presidential election could inhibit cooperation on a number of transatlantic agenda items including on critical minerals. The EU should look to institutionalize the Critical Raw Materials Club, working with like-minded partners and allies, to anchor itself within the global CRM supply chain and do so ahead of next year’s elections to ensure better longevity.

Nicole Lawler is a program assistant in the Atlantic Council’s Europe Center. Francis Shin is a research assistant in the Europe Center.