US and EU claim progress in reducing China reliance through ‘critical raw materials club’

White House meeting between Joe Biden and Ursula von der Leyen builds on plan to ‘strengthen supply chains and diversify away from single suppliers’
Talks also starting for limited trade pact on critical minerals allowing European electric vehicles to qualify for Inflation Reduction Act tax credit

US-China relations

Bochen Hanin Washington

Published: 7:45am, 11 Mar 2023

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The US and EU made progress on Friday towards building the “critical raw materials club” that European Commission President Ursula von der Leyen hailed earlier this year to diversify supply chains in a clear reference to China.

“Today we agreed that we will work on critical raw materials that have been sourced or processed in the European Union and to give them access to the American market as if they were sourced in the American market,” said von der Leyen after a private meeting with US President Joe Biden in Washington focused on transatlantic economic issues.

The meeting at the White House came less than two months after von der Leyen spoke at the World Economic Forum in Davos about building “a critical raw materials club working with like-minded partners” to “collectively strengthen supply chains and to diversify away from single suppliers”.

At Davos in January, von der Leyen acknowledged Europe’s “98 per cent” dependence on China for critical minerals expected to play key roles in transitioning to clean energy. She also criticised Beijing for heavily subsidising its “energy-sensitive companies” and called for a “level playing field”.

Von der Leyen has previously noted Europe’s almost complete dependence on China for critical minerals that are expected to play key roles in transitioning to clean energy. Photo: dpa

China controls more than half the world’s supply of many critical minerals, such as nickel, lithium and cobalt. These are vital to both military supply chains and clean energy technologies, and the US and EU fear Beijing might withhold the minerals to undermine their economies and security.

The joint post-meeting readout on Friday said the two sides would “immediately begin negotiations” on a limited trade agreement on critical minerals allowing European electric vehicles (EVs) to qualify for a new EV tax credit created by America’s new Inflation Reduction Act (IRA).

The two sides further announced a dialogue meant to increase transparency on subsidy incentives. A new “clean energy incentives dialogue” will form a part of the EU-US Trade and Technology Council, a bilateral forum to agree on principles for developing and deploying new technologies.

The dialogue would “facilitate information-sharing on non-market policies and practices of third parties – such as those employed by the People’s Republic of China – to serve as the basis for joint or parallel action and coordinated advocacy on these issues in multilateral or other fora”, the two leaders announced.

Biden and von der Leyen also committed to a deadline of October this year for finalising negotiations for a global agreement on sustainable steel and aluminium, which was first announced right before the EU leader’s last White House visit in 2021.

EU aims to process 40 per cent of its strategic raw materials by 2030

In addition, the two leaders reaffirmed their support for Ukraine, less than a month after they each visited Kyiv. “We are making Russia pay for its atrocious war,” von der Leyen told journalists ahead of their private meeting.

The head of the EU executive arm thanked Biden for helping reduce the bloc’s dependency on Russian fossil fuel.

Friday’s meeting marked von der Leyen’s first visit to the White House since Russia’s invasion of Ukraine. She and Biden met in Bali during the G20 summit in November.

Biden has prioritised improving US-EU relations since the start of his presidency. Since 2021, Washington’s relationship with Brussels has spawned extensive collaboration on Russia but differing views on trade and how to deal with China.

The Inflation Reduction Act – a wide-ranging industrial policy promoting clean energy investment and widely regarded as a major legislative win for the Biden administration – raised concern among European officials who saw some of its provisions, including those on EVs, as potentially protectionist and harmful to European carmakers.

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In December, after Biden proposed “tweaks” to the legislation to address European concerns, the US Treasury Department ruled that leased EVs, including European cars, qualified for the IRA’s commercial vehicle tax credit. But this did not address European carmakers’ hopes of qualifying for the consumer vehicle tax credit.

Ahead of Friday’s meeting, a senior Biden administration official said there was “unprecedented alignment between the US and Europe” on concerns posed by China, particularly its non-market practices.

There was also a shared sense that Russia’s war in Ukraine had put China in a “difficult position” and a recognition that “every step China takes towards Russia makes it much harder for China with its relationship with Europe”, another senior official said.

But the EU has generally been more reluctant to openly break with China. Von der Leyen at Davos made clear that the EU’s goal was to “de-risk” rather than “decouple” from China.