According to media reports, a new “solidarity instrument” is to help companies build alternative supply chains and cushion the impact of potential Chinese retaliation.
The European Union’s heavy reliance on imports of critical raw materials and intermediate goods from China has long been recognized. However, the bloc has made only slow progress in developing alternative supply chains. The European Commission is now reportedly working on a new financing instrument to support companies in diversifying their sources of supply. The proposed “solidarity instrument” would also cushion the economic impact of potential retaliatory measures by China, Bloomberg reported, citing people familiar with the matter. The instrument’s design and exact cost remain unclear, although the funding required could be substantial. EU member states are currently negotiating the bloc’s next multiannual budget.
The plan would form part of the EU’s broader strategy to rebalance its trade relationship with China. Alongside political dialogue, Brussels is considering new instruments to diversify supply chains and make greater use of existing trade policy measures, including anti-subsidy investigations, according to Bloomberg. The European Commission has stressed, however, that none of these measures is aimed exclusively at China.
The EU recently gave China until October to make progress in their ongoing trade dispute (we reported). Among other issues, Brussels is seeking what it considers more balanced trade and investment relations, as well as changes to China’s export controls. In recent years, Beijing has introduced numerous restrictions affecting the supply chains of critical raw materials such as gallium, germanium and certain rare earth elements. These measures have once again highlighted Europe’s dependence on Chinese supplies and the vulnerability associated with it. At the same time, industry representatives have repeatedly criticized the lack of financial support available to reduce these risks.
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