Analysis of U.S. and EU strategies to counter chinese leadership in critical commodities

In last week’s article: "China's rise in the critical commodities market: industrial strategies and geopolitical levers", we analyzed how China has managed to establish itself as a global leader in the critical raw materials market. According to analysts at The Economist, China’s dominance does not stem so much from advantages in natural resource availability, but rather from a long-term industrial strategy pursued over decades, based on a combination of public funding for production and refining, less stringent environmental and safety standards, dumping practices in international markets, and targeted acquisitions of distressed foreign mines.

The leadership achieved by China in the critical commodities market has enabled it to exert real geopolitical and trade leverage, as seen in the latest cycle of tensions between the United States and China. In this context, the Chinese government has introduced export restrictions on certain critical raw materials to obtain more favorable conditions in the revision of trade tariffs. These measures have had almost immediate effects, leading to a significant contraction in global supply and putting pressure on Western supply chains. Within a few months, prices of several critical commodities, essential for strategic sectors including electronics, aerospace, automotive, and defense, more than doubled.

The acceleration of digitalization processes, the transition to renewable energy, and the modernization of military systems are making it increasingly urgent for Western economies to reduce dependence on Chinese leadership and strengthen their autonomy in accessing critical resources.
In this article, we summarize The Economist’s position, presented in the briefing America’s new era of state-sponsored mining from the weekly edition Digging for Victory, on the main strategies adopted by the United States and Europe to counter China’s dominance and secure a safer and more autonomous supply of essential and limited strategic resources.

US and EU strategies to reduce dependence on China

In recent years, the United States and the European Union have developed a range of strategies aimed at reducing Western dependence on China in critical commodity supply chains. Washington has adopted the most ambitious and interventionist approach, based on three main levers:

1. Public investments and bilateral agreements: the United States supports new mining and refining projects through direct funding and subsidized loans, both domestically and in strategically important foreign countries. So far, 21 bilateral agreements have been signed and understandings reached with another 17 countries, often including clauses that limit or prohibit the sale of output to China, thereby ensuring priority and secure supplies for U.S. companies.
2. Project Vault: a project aimed at creating a national reserve of critical minerals designed to cover months, and in some cases up to a year, of domestic demand. Inspired by the Strategic Petroleum Reserve, the project involves private companies that purchase metals at predetermined prices and can access the stockpiles in times of crisis, ensuring production continuity and protection against market shocks.
3. Guaranteed minimum prices: to protect U.S. producers from market fluctuations and Chinese dumping. The Trump administration launched the first project in collaboration with MP Materials, a rare earth refinery in Texas, setting a floor price for neodymium-praseodymium oxide (NdPr): if the market price falls below the threshold, the Pentagon covers the difference, ensuring the economic sustainability of production and encouraging the expansion of domestic capacity.
   The United States aims to extend this logic to its international allies through the creation of a “minerals club”, which would ensure price protection and tariffs on supplies from outside the bloc, particularly from China. Producers within the club would benefit from a guaranteed minimum price on sales to companies within the bloc, with the difference covered by a fund financed by participating countries.

EU strategy

The European Union shares similar objectives to those of the United States but follows a generally less aggressive approach, more oriented toward international cooperation and market regulation. Brussels mainly focuses on diversifying suppliers through partnerships with producing countries, simplifying authorization procedures for new extraction projects, and strengthening European industrial capacity along the value chain. In this context, the Critical Raw Materials Act sets ambitious targets for 2030 based on annual domestic consumption: at least 10% must be extracted locally, at least 40% processed within the EU, and 25% recovered through recycling, while dependence on a single third country must not exceed 65%.

Main criticisms of Western strategies

Criticism of US strategies

Although the United States has allocated substantial funding to secure the supply of critical raw materials and reduce dependence on China, these funds risk being insufficient for individual projects. Overall, U.S. funding is significant, but once distributed among numerous projects, the concrete impact on each becomes limited.
To increase effectiveness, the United States should adopt a more targeted strategy, focusing exclusively on the most critical commodities rather than spreading resources across too many materials. A more selective approach would allow for tangible results in shorter timeframes, maximizing returns on investment and reducing the risk of incomplete or unprofitable projects.
The selection of critical raw materials to prioritize should be based on economic importance and supply risk. In this respect, the situation in the United States and the EU is quite similar. The hierarchy of raw materials in terms of importance and supply risk is comparable across both Western regions.

In the following chart, the 34 critical raw materials identified by the European Commission in 2023 for the EU are shown, positioned according to their economic importance and supply risk, based on the values reported on pages 51–53 of the report Study on the critical raw materials for the EU 2023.
The area of each circle in the scatterball is proportional to the substitutability of the raw material: the higher the substitutability, the larger the circle representing it.

As shown by the chart analysis, although many commodities are classified as critical, only a few combine high economic importance, high supply risk, and low substitutability. Funding should therefore be concentrated especially on particularly critical commodities such as niobium, magnesium, rare earths, and cobalt.

In addition to criticisms regarding U.S. public investment, there are also concerns about the other two main strategies adopted by the country. In particular, creating a strategic reserve of critical raw materials is much more complex than for oil, especially when it comes to metal storage. Storing raw minerals requires large spaces and is only useful if local refineries exist to process them into usable products, while already refined metals offer less flexibility. For example, aluminum can be stored in the form of ingots, sheets, or bars, each with different advantages and disadvantages in terms of use and transport.

Similarly, the minimum price mechanism also presents significant drawbacks, particularly in terms of efficiency, as it reduces incentives for companies to negotiate or optimize prices in the market. Moreover, even if the United States and its allies were able to create a “minerals club” with guaranteed minimum prices, Western economies would still remain dependent on China for refining, having to export raw minerals to China and reimport them in refined form. According to The Economist’s analysts, the main limitation of U.S. strategies lies precisely in the fact that they do not directly address the sector where China holds the strongest control, namely refineries and smelters.

Criticism of EU strategies

In the European case, the main criticism of current strategies to ensure a secure supply of critical commodities concerns insufficient funding. According to The Economist, the funds allocated by the EU amount to only €3 billion for 34 critical minerals, a figure considered too low by partner countries, which point out that Brussels demands supply guarantees while offering limited resources in return. Encouraging domestic production or diversifying suppliers involves high costs and requires years to build infrastructure and adapt regulations. Strategies such as reshoring or supplier diversification produce tangible effects only in the medium to long term, maintaining high dependence in the short term.

Conclusions

China’s leadership in the global critical commodities market has generated both commercial and geopolitical pressures, prompting Western governments to develop strategies aimed at reducing dependence on China and ensuring a secure supply of these resources. The United States has supported mining and refining projects through public funding, promoted the creation of a strategic reserve of critical raw materials, and introduced minimum prices to protect producers. The EU follows a more cooperative approach, focusing on supplier diversification, domestic production development, and strengthening the value chain through the Critical Raw Materials Act.

The main criticisms of these strategies concern their effectiveness and sustainability. In the United States, funding risks being fragmented, metal reserves are difficult to manage, and minimum prices create market inefficiencies. In the EU, funds are considered insufficient and measures produce concrete effects only in the medium to long term, leaving dependence on China high in the short term.
According to The Economist’s analysts, none of these strategies will be sufficient to reduce Western dependence on Chinese refining and smelting. Even if the West were to achieve self-sufficiency in the supply of raw minerals, it would still remain tied to China for subsequent processing stages.
The operational conclusion of this analysis is the need to consider supply risk as significant for all commodities in which China holds a leadership position.