How companies in EU will lower reliance on China
What's the story
The European Union (EU) is drafting new regulations that would require companies in the bloc to source critical components from at least three different suppliers. The move is aimed at reducing dependence on China, the Financial Times reported. The proposed rules will impact businesses in key sectors such as chemicals and industrial machinery.
Regulatory changes
New legislation to restrict supplier concentration
The proposed legislation will restrict companies from sourcing 30-40% of their components from a single supplier. The remaining components would have to be sourced from at least three different suppliers not based in the same country. This is part of the EU's strategy to counter China's trade leverage, especially in sectors where it has a stronghold.
Trade tactics
China's control over minerals used as bargaining chip
China has been using its control over the processing of several minerals as a bargaining chip, sometimes restricting exports, lowering prices, and undermining other countries' efforts to diversify their sources. This has particularly affected sectors like semiconductors, electric vehicles (EVs), and advanced weapons. In response, European Union Trade Commissioner Maros Sefcovic is planning punitive tariffs on Chinese chemicals and machinery to reduce the bloc's trade deficit.
Strategic alliance
Partnership with US on critical minerals
Last month, Sefcovic signed a memorandum of understanding with US Secretary of State Marco Rubio for a partnership on producing and securing critical minerals. The early-stage plans are set to be discussed at a commission meeting focused on China on May 29, and could be approved by EU leaders in late June.