A new European Commission tool aimed at forcing companies to break their dependence on a single country for critical supplies lands in early December, just days before EU leaders gather. The move sets up a direct confrontation with China, whose export restrictions on rare earths in 2025 paralyzed key green, digital, and defence supply chains during a US trade dispute.
Beijing followed that same year by cutting access to strategic chips, hitting Europe’s car sector amid tensions with the Netherlands over chipmaker Nexperia. While Brussels continues negotiations with Beijing to rebalance trade, the push to diversify suppliers in vulnerable sectors has accelerated.
The Commission wrapped up a business consultation on Tuesday that confirmed the instrument’s purpose, according to official language obtained in the process. It would target situations where heavy reliance on one supplier country threatens the EU’s supply security and broader economic stability. No specific sectors appear in the proposal yet.
Businesses pushed back during the consultation, warning that alternative procurement will raise prices. Luisa Santos, Deputy Director General at BusinessEurope, argued that companies already optimize for cost and performance, and that existing supplier relationships reflect those realities.
However, EU Trade Commissioner Maroš Šefčovič made the bloc’s position clear in a June 2026 speech. Industry occupies “the front line” of diversification efforts, he said, adding that companies must absorb “the cost of resilience” into their business models.
Santos stressed that not every dependency deserves intervention. She pointed to Chinese electric appliances as an example of supply relationships that function without being weaponized. Meanwhile, critical raw materials like rare earths pose a different challenge, since alternative suppliers simply do not exist at scale. China dominates both production and processing, leaving no room for diversification absent new sources.
Tobias Gherke, senior policy fellow at the European Council on Foreign Relations, outlined two possible shapes for December’s proposal. The minimalist version would mirror the energy sector approach, where the Commission mandated diversification for European utilities after Russia’s invasion of Ukraine. That model could extend to defence and dual-use industries.
The maximalist scenario would cast a much wider net. Any company purchasing more than a fixed threshold of a product from a single source would face tariffs, creating immediate incentives to find alternative suppliers. The cost would ripple across green technology, defence, and digital sectors all at once, delivering precisely the resilience pricing Šefčovič described.
