Highlights

• The U.S.-China tech war has shifted downstream from cutting-edge chips to critical minerals like gallium, germanium, and rare earth magnets that underpin modern industry.
• China uses export licensing as calibrated coercion, restricting materials below crisis threshold while Europe and U.S. lack domestic separation, metals, and magnet production capacity.
• Europe's vulnerability requires magnet-first re-industrialization, G7+ demand coordination, and building the 'boring middle' of processing infrastructure to reduce geopolitical leverage.

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A December 2025 brief (opens in a new tab) from the European Union Institute for Security Studies delivers an uncomfortable message for policymakers and investors alike: the U.S.–China tech war has quietly shifted downstream. The fight is no longer only about cutting-edge chips and lithography tools. It is about low-margin, high-impact inputs—rare earths, magnets, germanium, gallium—without which modern industry simply stops.

What the Brief Gets Right—Uncomfortably Right

The report accurately observes that Beijing has learned where leverage truly sits. By restricting exports of critical minerals through licensing, China moved the contest from elite technologies to foundational components used across autos, energy, healthcare, electronics, and defense. This matches 2025 reality: selective licences, drip-fed supply, and just enough relief to prevent an all-out diversification surge.

The brief is also correct that export controls now run both ways. Washington constrains advanced tools; Beijing constrains materials. The asymmetry matters. Chip controls slow China’s technological ascent. Mineral controls can halt production today.

Where Analysis Leans—and Where It Leaps

The brief warns that a Trump-era “G2 bargain” risks privileging U.S. firms while leaving Europe exposed. That risk is real. The claim that Washington monetized export reversals for U.S. chipmakers reflects reported policy discussions—but remains partly speculative until formalized at scale.

Still, the direction of travel—transactional bargaining—deserves scrutiny.

What is not speculative: Europe’s vulnerability. The brief rightly notes that China has calibrated pain below the threshold that would force a rapid European industrial rebuild. That is coercion by calibration, not crisis.

What’s Notable for Rare Earth Supply Chains

The most important insight is structural: magnets and materials outrank mines. Europe (and the U.S.) cannot diversify risk by announcing deposits alone. Until separation, metals, alloys, magnets, and qualification are built at scale, licensing remains a geopolitical dial Beijing can turn.

Opportunities for 2026

• Magnet-first re-industrialization: public offtakes, defense procurement pull, and allied co-investment.
• Demand-side coordination: “buy allied” standards across the G7+ to reshape markets.
• Economic deterrence: credible tools (including anti-coercion instruments) to raise the cost of calibrated disruption.

Best Course of Action

• China should keep licensing predictable to avoid accelerating buyer revolt; leverage works best when it looks administrative, not punitive.
• USA & Europe must build the boring middle: separation, metal, alloy, magnet, qualification. Without it, tech leadership rests on paperwork.

Source: Teer, J. Tech War 2.0: The dangers of Trump’s ‘G2’ bargaining with an emboldened China. EUISS (Dec. 2025).

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