EU Moves Toward Mandatory Supply-Chain Diversification to Curb China Dependence

The European Union is preparing a regulation that would cap the share of components sourced from any single supplier at 30-40 % and obligate firms in chemicals, industrial machinery, semiconductors and other strategic sectors to obtain parts from at least three different suppliers. Trade Commissioner Maroš Šefcovic is leading the shift from voluntary guidelines to enforceable rules.

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bid

Policymakers argue that Chinese dominance in processing key materials for semiconductors, electric vehicles and defence creates strategic vulnerability. Import concentration from China rose between 2018 and 2023, while the United States and China themselves diversified. A 2025 European Parliamentary Research Service brief shows more than 70 % of EU firms are reassessing supply chains; about one-third are actively seeking non-Chinese sources, yet 22 % still lack any alternative. The proposal builds on the Critical Raw Materials Act and the European Chips Act, which aim to secure inputs for the EU’s climate and digital ambitions.

European Union considers rules to diversify supply chains away from ChinaEU Moves to Reduce China Dependency with New Supply Chain Diversification RulesThe Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bidToward greener freight: Intermodal freight supply chain of China’s automotive industryRappler

A senior EU official warned that growing reliance on Chinese exports carries a price and that the bloc must redouble diversification efforts. The European Chamber of Commerce in Beijing, represented by President Jen Eskelund, cautioned that the sheer volume of Chinese components deepens Europe’s dependence. German trade association VDMA’s head Oliver Richtberg argued that EU firms cannot match subsidised Chinese pricing, leading to market-share loss, pressure on manufacturers and the loss of 22 000 jobs in Germany’s machinery sector last year. Industry groups fear the caps will raise costs, erode competitiveness and slow the EU’s climate transition.

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bidEuropean Union considers rules to diversify supply chains away from ChinaEU Moves to Reduce China Dependency with New Supply Chain Diversification RulesSouth China Morning Post

The regulation seeks to blunt the risk that China could use export controls or tariffs as economic leverage and to protect the EU’s climate agenda, which depends on minerals largely supplied by China. Analysts note that mandatory diversification may increase production costs, extend lead times and push global trade toward fragmentation, forcing a trade-off between strategic autonomy and climate timelines.

EU Moves to Reduce China Dependency with New Supply Chain Diversification Rules

• “In many areas we are gradually becoming dependent on exports from China. Dependencies have a price and therefore we have to redouble our efforts [to diversify],” — Senior EU official

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bid

• “It is the sheer volume of components being imported from China. If anything, Europe is getting more dependent on China.” — Jen Eskelund

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bid

• “[the EU is] losing market share, our industry is under significant pressure” — Oliver Richtberg

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bid

• “We lost 22,000 jobs alone in Germany in the machinery industry in the last year.” — Oliver Richtberg

The Day in Trade: New EU rules proposed to address Chinese industrial overcapacity and Brussels ‘hard-headed’ on possible future UK re-entry bid

The draft is scheduled for presentation to the European Parliament by the end of May, after which a vote and implementation planning will follow. Ongoing monitoring will track industry impact and may trigger adjustments as the rule is rolled out.

European Union considers rules to diversify supply chains away from China