Welcome back to Critical Supply, a newsletter on trade, economic security, and EU-US-China relations. I’m Eduardo Castellet Nogués, the author of this newsletter.
Coming out of Thanksgiving weekend, the security landscape of Europe and Eurasia is about to be redrawn — negotiations on both sides of the Atlantic led by special envoys and a now-dismissed Chief of Staff are promising to bring the Russian war against Ukraine to an end. And in the early hours of this Wednesday, the EU institutions have pledged to stop importing Russian gas by 2027, and introduced a 156bn EUR loan to Ukraine using Russia’s frozen assets, much to Belgium’s dislike. In this installment, we look at steps Europe can take to become competitive on the global stage.
This Week: Europe’s Strategic Supply Blind Spot: Critical Minerals
In a recent op-ed published in the journal of the youth wing of the European People’s Party with YEPP Secretary General Edelmira Ferri, we argue that Europe’s path to geopolitical security lies with forging new alliances and economic competitiveness in the industrial base, starting with critical minerals.
Critical minerals are essential to producing all elements of a modern armed force, ranging from bullets to satellites, missiles, and night-vision goggles. Years of ignoring a 90+% overreliance on China have led to a depleted defense supply chain in Europe, exposing the continent to becoming a pawn on the global stage. To regain agency and equip European capitals with a reliable mineral supply, we have outlined the following recommendations:
Local Red Tape: As Mario Draghi wrote in his report on the state of European competitiveness, the heaviest amount of red tape in Europe comes not from the European Commission, but from the different regulations across local, regional, and national governments. These different regulations and long timelines, combined with pressure on local councils by environmental groups, make it impossible for companies to know if their ventures will be successful. The EU’s designation of a Strategic Project in the CRMA promises to break ground more quickly, but to eliminate the problem permanently, the member states should push for a 28th regime, a unitary legal framework managed by the European Commission on which companies can operate throughout the entire Single Market. 27+ legal frameworks for critical minerals will not work; a single one, however, will streamline business operations and cut red tape.
Price Instability: Continuing our focus on why businesses are experiencing hardship in the buildup of operations in Europe, we find the dark reality of pricing. At any point, China can arbitrarily drop or raise export prices of any mineral, regardless of national pride; no company can afford such price fluctuations. Instead, European government efforts should focus on investing in mineral projects where Europe has existing reserves and a chance for a competitive advantage. Additionally, capitals will require allied coordination on price controls, as written about in a previous newsletter.
Growing Mining Expertise: Many a decade ago, Europe thrived with miners and mine managers from Asturias to the Saar. Today, most of them are retired or too old to work. A project like the Colorado School of Mines in Europe, coordinated with the private sector, could train and employ thousands of young Europeans, already struggling with unemployment, into the mining industry.
Investing in Refineries: Even if all the aforementioned steps are taken, it will still be brutally expensive to mine in EU countries due to the high costs of operating and the lack of many mineral reserves. China’s dominance in this supply chain comes not from mining, but mainly through importing raw materials and refining them in industrial clusters. Europe can replicate these clusters by tapping into its rich heavy machinery and chemical industries, like Spain’s and Germany’s chemical industry, or the Nordic battery supply chains. If national governments and European funds are targeted towards these clusters, there is a chance to turn Europe into a powerful actor in the supply chain in the long term. The Commission’s announcement from early this morning that it will mobilize 3bn EUR into 25-30 strategic projects of this nature is a step in the right direction.
Our Place in the World: Realizing the issues with mining in Europe, Brussels should capitalize on its most valuable assets: its alliances and the EU’s Global Gateway program, which has very quietly been positioning itself as an alternative to China’s Belt & Road Initiative. We will not reach developing, mineral-rich countries by giving them aid in exchange for minerals, but by pursuing wealth and national security for both sides. Unlike China, we can provide fair terms and good business. These partnerships should invest in key infrastructure connecting mines to commerce, such as ports, railways, roads, etc, which will have spillover effects for the rest of their local economy and cheapen transportation costs. But the EU cannot go on this road alone. The Lobito Corridor, which connects mineral-rich regions in Zambia and the DRC with a port in Angola, is co-funded by the US Development Finance Corporation. These mineral-rich nations will choose us as their partner if they have a commercial logic: if we partner up with G7 partners for these investments, we are promising the mineral producer a larger customer base and economies of scale.
The EU’s path to critical mineral security cannot lie alone on government actions, private sector support, or cutting red tape, but rather, through a combination of all these. The window for action, however, is very short, and it starts now. China recently showed that it can and will cut off access to critical minerals to the United States —why should we think they will behave any differently with Europe?
Futures Trades
India Negotiates Trade with Russia-led Eurasian Economic Union: This week, the Indian Minister of Commerce announced the country was starting Free Trade Agreement negotiations with the Russian-led Eurasian Economic Union (EEU). The EEU is a single trade market including Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, acting as the Eastern challenger to the EU, with mixed success. The move follows unsuccessful US and European pressure for New Delhi to disentangle itself from the Russian defense industrial base and the near-culmination of India’s FTA signature with the EU. The announcement should be seen as India’s digging into its position of “multilalignment” with strategic blocs, exploiting their growing market base as geopolitical leverage. Could it be a tactic to pressure Brussels into conceding on certain FTA negotiation points? A clear signal to Washington that it will not accept being seen as one more ally? Or a reassurance to Moscow of their long-standing partnership? Whether the negotiations actually kick off will be a space to watch.
Brussels To Buy Equity in Australian Mines: Earlier last week, the European Commission for Trade, Maroš Šefčovič, announced he had agreed with Australia’s Resources Minister to launch equity investments into Australian mining projects. Sound familiar? The US Development Finance Corporation is also launching equity projects in developing countries targeting key minerals, and Japan’s Critical Minerals Agreement with the US creates a framework for joint equity investments. These equity investments would give these governments de facto power over global pricing, which could hurt China’s chokehold on the supply chain. The move indicates that Europe is serious about critical minerals — combined with the EU Critical Raw Materials Act, and existing investments in the Lobito Corridor and developing nations through the Global Gateway Initiative, this move is a step in the right direction, if materialized.
Reading Supplements
The West’s Last Chance — Foreign Affairs — Alexander Stubb
How to Win the Economic War with China — TIME — Edward Fishman and Julian Gewirtz
China’s rare-earth dominance is secured by American red tape — The Washington Post — Meg Reiss
Bigger and Better: How China’s Fleet is Getting More Dangerous — The Diplomat — Anna Matilde Bassoli
False sense of security: European complacency on rare earths is the wrong answer to the US-China trade truce — ISS — Joris Teer