EU Weighs In-Kind Tariff to Secure Raw Materials

Brussels is preparing one of the most radical trade measures in decades: an “in-kind” tariff mechanism that would link Chinese exports of finished goods to compulsory deliveries of critical raw materials into EU reserves. The proposed policy, under discussion within the framework of the Critical Raw Materials Act, seeks to counter Beijing’s dominance of the upstream supply chain while embedding strategic autonomy into Europe’s trade architecture.

China controls roughly 85 percent of global processing capacity for rare-earth elements and battery metals, while the European Union imports about 75 percent of its needs. The new measure would condition access to the EU’s consumer market—valued at €450 billion annually for Chinese manufacturers—on reciprocal supply commitments of lithium, cobalt, and rare-earth concentrates to European stockpiles. In essence, market access would be traded for materials security.

Europe’s trade deficit stands near €185 billion, and industrial output growth remains stalled at roughly 1 percent. Under the proposed system, Chinese producers would either deliver physical quantities of designated materials or face equivalent monetary tariffs calculated at market value. By internalising the scarcity cost, the EU aims to stimulate regional mining and refining projects, supporting players such as Eramet (PA: ERA) in France and Glencore (LSE: GLEN) in the United Kingdom.

If enacted, the policy could trigger more than €50 billion in new extraction and refining investment across the bloc by 2028, potentially adding up to 0.3 percentage points to GDP through import substitution. European industrial funds and national development banks are already assessing equity stakes in strategic mineral projects from Portugal to Finland. Market expectations have adjusted accordingly: spot prices for nickel, lithium, and rare-earth oxides have firmed as investors price in higher input costs but improved long-term supply resilience.

The initiative marks a decisive departure from the post-WTO free-trade paradigm. It redefines competitiveness around geopolitical leverage rather than cost minimisation, aligning the EU with the United States and Japan in weaponising trade instruments for resource security. Yet the approach carries risk. Beijing could retaliate by restricting exports of processed intermediates, raising costs for Europe’s automotive and electronics sectors. Analysts estimate that a 10 percent reduction in Chinese component imports could shave 0.2 points off EU manufacturing output if substitution lags.

Brussels views that risk as manageable compared to the strategic vulnerability of relying on a single supplier bloc. Success will be judged by tangible metrics: the share of non-Chinese critical-mineral inputs in EU manufacturing rising above 50 percent by 2027, and stable price spreads for key metals despite reduced Chinese exposure.

The proposed in-kind tariff thus captures the new reality of industrial policy—where access, reciprocity, and resilience outweigh the efficiency of globalised supply. Europe’s competitiveness is being re-priced in strategic metals, not marginal costs.