Europe spent decades optimising its economy for cost. Now geopolitics is forcing a different calculation. From Chinese rare earths to European defence spending, resilience is becoming worth paying for, even when it isn’t the cheapest option.
The World Became Cheap. Then It Became Risky.
European companies once asked one question above all others: where is it cheapest? COVID, the war in Ukraine, an energy crisis, and now Chinese export controls have added a second question. Can we still get it if geopolitics changes? This isn’t a story about globalisation ending. Europe still imports heavily from China. It still trades extensively with the US and Asia. What’s changing is the willingness to optimise everything purely for price.
China Exposed Europe’s Supply-Chain Problem
The numbers make the tension concrete. The EU’s goods trade deficit with China hit €98 billion in Q1 2026, the widest since Q3 2022. It formed part of a 2025 deficit of €360 billion overall. China remains the EU’s single largest source of imports, supplying electrical equipment, machinery, and components no single alternative can easily replace. Europe can call China’s dominance risky. It still can’t easily walk away from it.
Rare earths sharpen the point further. In July, the International Energy Agency warned that full implementation of China’s export restrictions could put $6.5 trillion of downstream production at risk outside China. That exposure spans automotive, defence, electronics, and energy. The US and Europe would absorb nearly half that impact. Rare earths aren’t used in bulk. They’re used in tiny quantities that are nearly impossible to substitute. In July, Beijing also imposed export restrictions on dual-use goods against 14 European companies, in response to EU sanctions on Russia. The question has shifted from “can we buy it cheaply?” to “can the supplier decide whether we’re allowed to buy at all?”
Europe Is Building Again
Brussels isn’t standing still. The EU’s Critical Raw Materials Act aims to expand domestic mining, processing, and recycling capacity by 2030. The goal is reduced reliance on any single external supplier. The concentration problem extends well beyond China: the EU sources 100% of its heavy rare earth elements from China, but also depends on Turkey for 99% of its boron and South Africa for 71% of its platinum. In April, the EU launched its Raw Materials Mechanism. It pools corporate demand and connects it with alternative suppliers, financial institutions, and stockpiling projects across rare earths, defence materials, and battery inputs. The underlying shift is clear. Europe is moving from trusting the market to deliver the cheapest goods, toward actively managing strategic supply.
Industrial Policy Is Back
The EU’s Clean Industrial Deal extends this logic well beyond raw materials. It bundles affordable energy, domestic clean-tech manufacturing, strategic procurement, and targeted investment into a single industrial strategy. The plan aims to mobilise over €100 billion in investment. It also sets a target for 40% of key clean-tech components sold in the EU to be produced domestically by 2030. The old calculation compared European production costs against cheaper Chinese imports, then chose accordingly. The new one asks a different question: even if it costs more, should Europe still make some of it itself?
That same instinct is accelerating defence policy too. The EU’s Readiness Roadmap 2030 aims to expand European defence-industrial capacity and strengthen critical supply chains by decade’s end. It sets a political target of sourcing at least 55% of defence procurement from European industry. Defence policy is becoming industrial policy. Industrial policy is becoming supply-chain policy. And supply-chain policy is becoming, unmistakably, foreign policy.
AI is following the same trajectory. The EU recently unveiled plans to invest €10 billion across seven AI “gigafactories,” aiming to draw in another €20 billion from private capital. The concern driving it: Europe is falling behind the US and China on AI infrastructure. The stakes go beyond who builds the models. They concern who controls the chips, the cloud, and the data centres underneath them. Strategic autonomy, in other words, now extends well past raw materials into the infrastructure of the digital economy itself.
Resilience Has a Price
None of this means Europe can simply become self-sufficient. Full reshoring of batteries, chips, rare earths, solar panels, and AI hardware would raise costs sharply. The European Commission itself acknowledges that high energy prices already squeeze the competitiveness of energy-intensive industries. Cheap globalisation delivered real benefits: cheaper electronics, cheaper batteries, cheaper industrial goods, and leaner inventories built on just-in-time production. What that system never priced in was geopolitical risk. COVID, Ukraine, the energy crisis, and Chinese export controls have all made that hidden cost newly visible. The cheapest supply chain is no longer necessarily the cheapest supply chain, once disruption risk gets factored into the true cost.
Europe Does Not Need to Leave Globalisation
World trade isn’t disappearing. Europe, China, and the US remain deeply interdependent, regardless of the political rhetoric. What’s shifting is the underlying objective. Where efficiency once came first, Europe is increasingly weighing efficiency alongside resilience. Security is becoming worth paying a premium for, at least in genuinely strategic sectors. Europe is not choosing between globalisation and protectionism. It is trying to build a third model: open, but less dependent.
Key Sources
- EU trade with China – latest developments — Eurostat
- China’s rare earth curbs endanger $6.5 trillion of Western industry, IEA says — Reuters
- Critical raw materials — European Commission
- Commission launches platform to aggregate demand for raw materials — European Commission
- Clean Industrial Deal Factsheet — European Commission
- Readiness Roadmap 2030 — European Commission
- EU lays out $11.4 billion for 7 AI gigafactories — AP News
Subscribe to EuroLuminant for independent European journalism.
