MNI BRIEF: EU Firms Exposed To US Rare Earth Supply -ECB

A sudden stop in the supply of rare earth elements from China to the U.S. would have significant repercussions for the euro area firms because of the central position of US-based firms in the global supply network and very few European firms deal with Chinese exporters directly, European Central Bank economists noted in a pre-release from the economic bulletin.

“The US firms -- including prominent tech companies such as Microsoft, Apple and Intel -- operate in strategic industries like semiconductor fabrication, precision magnet production and chemical processing, and they depend on sourcing raw materials from China. This demonstrates the euro area’s indirect exposure to Chinese rare earth suppliers,” the article noted, adding that any alteration in U.S.-China trade tensions could cause cascading effects across supply chains.

The reliance on China as a rare earths supplier is a potential inflation and growth riask for the euro area and the restriction of rare earth exports by China in June has already caused disruption in the global value chain and affected some European firms that didn’t stockpiled rare earth elements.