EU's push to reduce reliance on China could come at a price

The European Commission will present a tool in early December, a week before a meeting of EU leaders, designed to push companies to diversify their suppliers and reduce strategic dependencies on a single country. ADVERTISEMENT ADVERTISEMENT Although China has not been explicitly mentioned, the future proposal is directly aimed at Beijing, which blocked exports of rare earths — essential for green technologies, digital industries and defence — in 2025 amid a trade war with the US. The EU car industry was also put at risk that same year after Beijing cut off access to strategic chips during a dispute with the Dutch government over chipmaker Nexperia. Even as Brussels negotiates with Beijing to rebalance their trade relationship, diversification has become urgent in sectors where dependencies create economic vulnerabilities. Few details of the future proposal have emerged, but in a consultation with EU businesses that closed on Tuesday, the Commission stated that the new instrument would aim “to address cases where a high level of strategic dependencies on a single supplier country creates a risk for the EU’s security of supply and thus its economic security.” Increased costs Some companies warned in their consultation responses that finding alternative suppliers would increase their costs. “Companies are already doing the maximum to have a cost-effective structure,” Luisa Santos, Deputy Director General at BusinessEurope, told Euronews. “If they are working with certain suppliers it is because they are the ones that have the best offer in terms of the product, regarding its cost and performance.” However, on 5 June 2026, EU Trade Commissioner Maroš Šefčovič made clear in a speech that industry would be “on the front line” of efforts to diversify suppliers and that business models should incorporate “the cost of resilience.” “Economic security is a shared responsibility, industry stands on the front line,” he said, “we must have their back, but industry also must do its part.” He added: “That means diversifying rapidly and strategically, and it means integrating the cost of resilience into business models and treating geopolitical risks as what it is, the core business risks.” It remains unclear which sectors will be covered and what criteria will be used. Santos, however, stressed that while diversification is necessary to address the risk of the EU's dependencies being weaponised, not all dependencies should be considered problematic. “We should be focusing more on the areas where we are seeing weaponization. I don’t think that our dependency on Chinese electric appliances for instance should fall within the scope.” The business representative also stressed that, for products falling within the instrument's scope, alternative suppliers must be available. That is not the case for some critical raw materials, including rare earths, where China dominates production and processing. “Diversification in that case is not an option, and this needs to be considered unless new sources come into the picture,” Santos added. The “minimalist” and “maximalist” scenarios Last June, Šefčovič suggested that the Commission could draw inspiration from the Energy Union, which pushed companies to diversify their energy supplies away from Russia following the outbreak of the war in Ukraine. “At that time, I remember very vividly the discussions we had about investing in energy terminals and interconnectors and how unpopular it was,” the Commissioner said last June, adding that the investments had raised numerous questions, particularly over their cost, given that Russian gas was cheaper. “With the hindsight, it was vital for us,” Šefčovič added. The EU's REPowerEU plan, launched in May 2022 to phase out dependence on Moscow, bans import of Russian oil and provides for an end to short- and long-term contracts for Russian gas and liquefied natural gas (LNG) in 2026 and 2027. EU businesses have had to adapt. Investments have been made in renewable energy, new suppliers have had to be found, joint purchasing has been made possible, and prices have risen for EU consumers. Tobias Gherke, a senior policy fellow at the European Council on Foreign Relations, sees the energy approach as the minimalist scenario for December's diversification tool. “The minimalist scenario would be to restrict diversification to a couple of sectors,” he told Euronews, “like they made it mandatory for European energy utilities to diversify.” The expert pointed to the US defence industry, which was pushed to diversify its suppliers to reduce its dependence on Chinese minerals. Other critical sectors could also fall within the instrument's scope, including dual-use industries and infrastructure such as healthcare and energy grids. A second, “maximalist” scenario, according to Gherke, would be to say: “ Everyone who is buying more than a certain threshold of a specific product from a single source would face tariffs.” Gherke added: “Therefore they would be incentivized to buy from a different source.” Such a scenario would cover a broader range of sectors. If tariffs made supplies of certain critical raw materials more expensive, the consequences would be felt across green technologies, defence and digital industries simultaneously. “Everyone would be captured,” the expert said. For EU businesses, this would be what Šefčovič called “the cost of resilience.”