At the mercy of a monopolist. Germany's dependence on uncommon earth metals from China

The customs war between the US and China has caused serious economical repercussions for the EU, including Germany. Beijing responded not only to the increase in tariffs on US goods but besides to the introduction of global export restrictions on uncommon earth metals (REEs) and products from them, including permanent magnets. The temporary deficiency of access to these key goods caused delays in production in many companies from Germany, as 92% of imported magnets are imported from the PRC. due to this strong dependence, Berlin has not taken any retaliatory action against it, and since July import of permanent magnets has returned to value from the beginning of the year. However, the hazard of bottlenecks in manufacture remains valid.

In the absence of viable alternate sources of REE Beijing will usage restrictions as a tool for force on the EU, demanding concessions in another policy and economical areas. The PRC is liable for almost 70% of the world's production and 90% of the processing of these metals. Many years of technological negligence, stringent environmental rules and extended bureaucratic responsibilities make it virtually impossible to start extraction and processing in the EU in the coming years.

Germany's many omissions in natural material policy have led to an excessive dependence on imports of permanent magnets. The further improvement of industries specified as energy and automotive present depends on maintaining REE trade with China, and companies do not have the technology to increase their sovereignty in the processing of these metals. Despite expert warnings on the expanding hazard of supply disruptions, the ruling efforts to diversify sources have so far been only apparent. The worsening problems in trade relations with the PRC are prompting the German authorities to change the direction of abroad policy and to search another partnerships, including Canada.

Extraction and industrial importance of uncommon earth metals

REE is simply a group of 17 elements that are divided into light, average and heavy. Contrary to the name, any of them are more common than lead or copper, but they do not happen alone, and their concentration in ores is seldom advanced adequate to make the extraction economically viable. They are characterized by a very advanced magnetic strength and stableness at advanced temperatures, which makes them applicable in many industries.

Largest reserves^[1] The REE is found in China (approximately 44 million tonnes of REO, which represents 48% of the world's usable resources) and Brazil (21 million tonnes), see illustration above. The USA is ranked seventh (1.9 million tonnes), but is the second maker of these metals in the PRC, which accounts for 69.2% of global production (see figure below). dense REEs happen almost exclusively in China, are little frequently available than light and more hard to get – so they are of specified advanced value and included in the list of export controls.

The extraction, separation and refining of REE are complex, costly and related processes of radioactive waste. China since the 1980s. In the 20th century, they invested intensively in the improvement of applicable technologies and know-how, while another countries commissioned the acquisition and processing of external entities to minimise costs and defend the environment. Therefore, the PRC is presently liable for 90% of the global processing of these metals, which in practice means a monopoly. The state subsidies besides make permanent magnets comparatively cheap, preventing price competition for companies from another countries.

REE is primarily utilized in the production of permanent magnets which are of strategical importance to the planet industry. Beijing's export control is so peculiarly severe for abroad companies. Magnets play a key function in the defence sector, in the automotive manufacture in the production of electrical motors and sensors, and in wind energy in the production of turbine generators. They besides find usage in consumer electronics, medical devices, robotics, etc. According to forecasts, the consumption of REE in magnet production will increase and by 2030 it will account for over 35% of the full request for these elements^[2]. The areas of usage of REE include production of catalysts and glass and metallurgy.

Dependence of the German manufacture on uncommon earth metals

The delays in REE exports by China have caused concern in the RFN manufacture due to the delicate importance of permanent magnets for the full economy of that country. Motorization, mechanical engineering and energy and defence technologies are peculiarly delicate to supply chain disruptions. In 2022 1,3 million people worked in the production of products containing these elements – 17% of all processing workers^[3]. The shortages of magnets cast uncertainty on the course and success of the green transition: the deficiency of unchangeable supply of these components can weaken the ability of companies to further develop, especially in the area of electromobility.

Problems with the shortage of REEs and magnets endanger to detonate in Germany a much more serious crisis than the energy crisis of 2022, due to the deficiency of alternate sources. In 2024, 92% of REE magnets imported into Germany came from the PRC.^[4]. At the same time, Germany was the largest recipient of this product from the PRC, representing 18.8% of Chinese exports^[5] (see diagram below). Large quantities of natural REEs (EUR 64.7 million in 2024) are besides imported into the country. On the another hand, the extraction of these metals on the ground has no future: although deposits estimated at 20,000 tonnes of ore have been discovered in Saxony, the REE content is estimated to be about 0.5%, making it unprofitable.

The pursuit of independency by Germany and the EU is besides hampered by strict EU environmental rules and ongoing administrative procedures. 1 of the largest REE deposits in Europe is located in the vicinity of Kiruna, Sweden, with about 1 million tonnes of ore located in fresh years. According to the LKAB mining company there, however, due to the long process of obtaining permits, mining and selling metals can only start in 10-15 years^[6].

politicisation of natural materials

The fresh disruption of exports of REE from China started the customs conflict of this country from the US, started in February 2025 by the Donald Trump administration. In April, the full number of US customs duties on goods from the PRC reached 54^[7], and Beijing not only responded by expanding the tariffs on US products to the same level, but besides reduced the global sales of the 7 dense metals of this group and the products thereof. The decision was justified by the dual application of these elements: magnets built from them play an crucial function in the weapons industry, including rocket guidance systems and advanced communication equipment. Under the fresh rules, companies wishing to import REE were required to get a licence issued by the Chinese Ministry of Commerce to the Council of the State. The waiting time for the paper was at first 45 days. Licenses, valid from 1 year to 3 years, are not granted to companies suspected of wrestling. In July, imports of permanent magnets returned to pre-April limit values (see illustration below).

Officially, export control was to be aimed at the US defence industry, but its negative effects were besides felt by European players. The strong dependence of the EU on REE imports has become a tool of force in the hands of Beijing, who, in exchange for issuing licences, began to request concessions in another areas. The demands included, among others, the provision of detailed information on the usage of these metals by European companies. In the case of automotive companies, it was data on the plan of electrical motors and production volumes or descriptions of manufacturing processes. specified claims are unprecedented in terms of scale and severity, as there is simply a hazard of industrial production being stopped throughout the EU.

Response by government and private entities

Immediately after the implementation of export restrictions, the German authorities abstained from authoritative responses to them. They did not announce any repercussions on China either, and they would not let for excessive economical dependence to take specified action. The public address of the problem could be taken as a confession to powerlessness and that the current difficulties have arisen as a consequence of negligence in building national REE supply chains and ineffective natural material policy by which the national manufacture is in trouble. It was only during the EU-China Summit in July 2025 that Johann Wadephul (CDU) spoke first. It stressed that the PRC had undermined its assurance in the field of trade and threatened to usage Union instruments to combat unfair economical competition on its part.

In the German business environment, after Beijing halted the sale of REE abroad, panic broke out. As early as June 2025, the first companies were forced to reduce production, and many sectors were afraid about the collapse of operations^[8]. The problem was addressed by industrial manufacture organizations specified as VDA and VDMA. The second straight called on Brussels to exert more force on Chinese to reconstruct exports of these metals^[9]. This was besides the main subject discussed by German companies during this summit. Wadephul's declaration and the reaction of entrepreneurs may mean a willingness to build a common front for the RFN and the EU against the PRC. This would mean moving distant from Berlin's erstwhile alternatively individualist approach, which frequently guided its own interests in relations with this country.

In a broader context, REE imports form part of the overall problem of the structural dependence of the RFN manufacture on abroad supply. Its economy is besides powerfully based on another critical natural materials from China, including letter, graph and magnesium. The risks of this are well known for years to the rulers and experts^[10]. To not the first time Beijing uses commercial tools to exert force – in 2010 it stopped exports of uncommon earth metals to Japan in connection with the dispute for 2 months about the island of Senkaku/Diaoyu, which caused global price increases and concerns for safety of supply besides in Berlin.

Industry organisations and analytical centres have for years clearly indicated the request to reduce the dependence of the RFN on the import of critical natural materials from the PRC^[11]. They would like to extend the diversification of sources through partnerships with another producers and increase the participation of German state and private sectors in offshore mining and processing projects^[12]. another recommendations include the improvement of national natural materials and recycling capacity and the creation of reserves. The wave of expert appeals and recommendations in the field of natural materials policy increased peculiarly after 2022, erstwhile the scale of risks arising from dependence on Russian oil and gas was revealed. According to the Institute of marketplace Integration and economical Policy (MIWI), the supply shock associated with REE imports could lead to a 4% simplification in German GDP^[13]. However, the possible breakdown of supply chains from China poses a danger not only to manufacture but besides to national security. Chancellor Friedrich Merz wants to make the Bundeswehr the strongest conventional army in Europe, and the components of the REE play a key function in the expansion of armaments.

In consequence to the possible risks associated with the interruption of the supply of natural materials by the PRC, the German authorities have been drawing up for more than a decade agendas to identify possible economical risks and beneficial practices. First strategical paper on the independency of the country’s natural materials – Rohstoffstrategie – was created in 2010. It was updated a decade later and in 2023 a publication of the national Ministry of Economy and Climate Protection (BMWK) was published. Paths leading to sustainable and resilient supply of natural materials^[14]. These studies concern in particular:

• developing the circular economy and fresh recycling technologies REE,
• diversification of supply chains,
• joint global projects in the field of REE extraction and processing,
• increase the retention capacity of natural materials and the creation of their reserves,
• shaping consistent ESG standards.

The last examples of applicable implementation of these papers were visits by president Frank-Walter Steinmeier to Kazakhstan in June 2023 and Chancellor Olaf Scholz to Central Asia in September 2024. Steinmeier signed 23 agreements worth a full of US$1.7 billion concerning cooperation in the processing of REE and another areas of manufacture and agriculture^[15]. Scholz, on the another hand, concluded an agreement on the extraction and acquisition of REE from Uzbekistan^[16]. Germany has besides been cooperating with Mongolia since 2011 in the trade of natural materials, including uncommon earth metals. During a gathering with the Prime Minister of Mongolia in 2022 in Berlin, the Chancellor expressed his desire to deepen the partnership in this area.^[17].

The latest initiative of the German government is to launch in the autumn of 2024 a natural material fund supporting projects aimed at diversifying supply of key resources, including REE, for national industry. The Fund's budget is EUR 1 billion and it itself includes projects related to the extraction, processing or recycling of natural materials considered strategical by the EU^[18]. Not 1 has yet been selected – the first are just entering the analysis and evaluation phase^[19]. Delays resulted from an extended administrative process: it was only from July 2025 that it was known which entity would be liable for examining and accepting applications. Bank KfW received 40 notifications from companies curious in participating in this initiative^[20].

The steps taken by Berlin have not yet yielded concrete results in reducing the dependence on imports of REE from the PRC. Over the years, the German manufacture has benefited from inexpensive imports of permanent magnets, and many times mentioned by the experts of threats and risks appeared unlikely. It was only after 2022 that political will arose to search alternatives to lucrative Chinese supplies, but the rulers did not do much to make processing or recycling technologies for these metals – neither domestically nor in cooperation with abroad operators – which are crucial for the production of permanent magnets.

At EU level, the introduction of the Critical natural Materials Directive (CRMA) in 2024 should be considered the most crucial step of fresh years. According to this report, by 2030 the EU should halt bringing in more than 65% of its yearly request for any 3rd country. In addition, 25% of yearly consumption should come from recovery of materials alternatively than fresh extraction^[21]. presently this indicator for REE is little than 1% in the EU and investigation efforts focus on the recycling of permanent magnets^[22]. Among the main reasons for the mediocre improvement of the European uncommon earth recovery manufacture is the advanced cost of the final product, which is not competitive with Chinese magnet prices. The problem for the Union is besides the low percent of electronic waste collected and recycled, which led the European Commission to amend the WEEE Directive (waste electrical and electronic) in July 2025.^[23]

The private sector of Germany is besides attempting to safe the supply of REE and magnets. Among the companies seeking backing under this natural material fund is the Australian company Arafura uncommon Earths, which, in addition to the extraction of these metals, plans to build 1 of the first ore processing plants in the north of the continent. In April 2023, the company signed a contract with Siemens Games to supply neodymium and prazeodym between 2026 and 2030. The company besides began talks with Chinese suppliers of permanent magnets about moving production to Europe to safe supplies for German companies^[24]. Another example of a private initiative is the improvement of EESM engines by BMW, which do not require permanent magnets. This solution eliminates the dependence on REE imports, but involves another technological constraints, which is why these engines have inactive not been widely utilized in the automotive industry. In May 2024, German Heraeus Remloy opened a REE magnet recycling facility in Bitterfeld, recognized as the largest specified facility in Europe. The first plans were to produce 600 tonnes of magnetic powder per year with a view to doubling this quantity. However, the company is faced with financial problems that do not let it to scope full capacity^[25].

REE perspectives in German abroad policy

The current CDU/CSU-SPD government announced a somewhat more confrontational course towards China than the 1 that chose Scholz's cabinet – open to concessions and closer cooperation^[26]. Merz (CDU) declared before the parliamentary elections that he did not intend to support companies that would voluntarily stay in the PRC despite deteriorating political conditions^[27]. He repeatedly pointed out the immediate request to diversify trade relations. At the Berlin Ambassadors' Conference in early September 2025, he stated, for example, that Germany could not let an excessive dependence on natural materials again due to the hazard of political pressure. At the same time, the coalition wants to keep its existing level of cooperation with China in another areas specified as trade and climate challenges.

The authorities have besides taken steps to establish fresh partnerships in the area of bringing in the REE. During Minister Wadephul's journey to Japan in August 2025, both countries expressed their willingness to cooperate in reducing dependence on supply of key natural materials from the PRC^[28]. The most crucial step so far by the German government was to sign an agreement with Canada in late August 2025 on importing delicate natural materials and to advance cooperation between companies from both countries.^[29]. Although the country is extracting and processing REE on a commercial scale, there is not yet adequate infrastructure to grow into a major alternate to China in the close future^[30]. However, it intends to increase production capacity in consequence to demand, including from the US.

The United States is the second largest maker of REE, but they will not replace the PRC in the coming years in the area of supplying Germany and another EU countries with this natural material. Since 2023, the EU has been negotiating with Washington an agreement on critical natural materials (CMA) to warrant the supplies essential for the production of batteries for electrical cars. Brussels seeks to cover more than 50 natural materials included in CRMA (including REE), but the US side proposes to limit its scope to five: graphite, lithium, manganese, nickel and cobalt^[31]. president Trump is presently focusing on expanding the production and processing of REE in the US and securing the country's independency in this sector^[32]. The subject of these metals being sold to EU countries did not happen during trade negotiations between Brussels and Washington.

In the short and average term, the RFN will surely not be independent from bringing in permanent magnets from China. Today, the government focuses on stimulating economical growth and making up for investment in outdated infrastructure, so supporting investment in capital-intensive processing and recycling technologies in the context of the excessive budget will not be a precedence for Berlin. Political and economical relations with Beijing will most likely proceed to be cautious (e.g. in terms of reducing the inflow of Chinese electrical cars to the EU) as the authorities do not want to hazard further export restrictions. This would mean that the PRC could in practice form trade relations with Germany and influence the manufacture there without fear of repercussions from Berlin. In the long term, the hope for Germany is that another countries (such as Australia or Canada) will make their own uncommon earth metallic processing industry, thus providing fresh options to increase diversification of supply chains.