The EU is heavily dependent on China and other countries for the essential raw materials it uses for the production of telephones, electric vehicles or semiconductors. So how can it achieve its goal of 'derisking' the European economy?
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00:00 This is why after de-risking through diplomacy, the second strand of our future China strategy
00:07 must be economic de-risking.
00:16 After the President of the European Commission gave that speech in March, the EU confirmed
00:20 its de-risking strategy. But how will the European Union implement it when it is heavily
00:25 dependent on imports from China?
00:29 What does de-risking as an economic strategy mean and what does it imply for Europe and
00:33 its industries? Is it the right approach to create a more stable and resilient economic
00:38 environment? To find out, I am meeting with experts and technology companies in France.
00:45 In Paris, John Seaman from the French Institute of International Relations reminds us of current
00:50 geopolitical instability.
00:54 As we move forward with these broad structural transformations, particularly the transition
00:59 to a net zero society and a digital society, we are finding that there are increasing sources
01:06 of dependence on countries which are increasingly willing to use those dependencies as sources
01:16 of leverage in a more contentious or conflictual global environment. So as we move forward
01:23 with the energy transition into electric vehicles, into solar power and renewable energy, we
01:29 find that many of our supply chains are actually dependent on one source, particularly on China.
01:35 The European Union is heavily dependent on other countries for critical raw materials
01:40 which are used to produce phones, electric vehicles or semiconductors. For instance,
01:45 China supplies Europe 100% of its heavy rare earth element needs. Turkey supplies 98% of
01:52 its boron needs and South Africa 71% of its platinum needs.
01:58 The question now is how do you mitigate the risks relative to those dependencies? How
02:04 do you negotiate with China to try to make it so that China won`t use its sources of
02:11 leverage to the detriment of Europe`s own interest?
02:19 What is Europe`s strategy for strengthening economic security? Here`s our crash course.
02:26 Europe`s plan for de-risking the economy from China, Russia and other countries is based
02:31 on four pillars. Number one, to make industry more competitive and resilient. It means boosting
02:38 digital green and health technologies and diversifying its supply of important rare
02:43 earths and metals.
02:47 The second pillar is to make better use of existing trade rules. Europe wants to avoid
02:52 markets being distorted by unfair competition and to reduce concerns about security around
02:57 technologies like 5G.
03:00 The third pillar is to defend critical sectors like quantum computing, robotics or AI.
03:05 The EU wants to make sure its expertise isn`t used to boost the military or intelligence
03:10 capacities of its rivals.
03:13 The fourth pillar is to make the most of free trade deals with countries like Australia,
03:16 Mexico and Chile. The aim is to diversify supply chains and trade.
03:23 Do these ambitions resonate with industrial players? Let`s head to Lyon to meet Emilie
03:30 Jovier from the Yall Group, a consulting firm that works with the global semiconductor industry
03:36 at the heart of global economic challenges.
03:43 Many of our clients are actually looking to regain control, particularly over packaging,
03:48 which predominantly comes from China and Taiwan. They`re seeking to relocate to Southeast Asia,
03:54 for example.
03:55 It should be noted that the semiconductor industry, which is worth 534 billion euros,
04:02 is closely scrutinized by governments, who are doing everything possible to maintain
04:07 their position in this race for technology as well as revenue.
04:11 Therefore, the EU has launched the European Chips Act with the aim to increase production
04:16 capacity of chips to 20 percent of the global market`s needs by 2030.
04:23 We cannot unravel supply chains that are complex and where the component cost is also very
04:29 important. The effort made by the European Union to invest 43 billion euros is quite
04:36 significant. It will not be enough to achieve complete autonomy in semiconductors, but it`s
04:43 already a first step towards mastering or remastering this industry.
04:50 France with its reindustrialization strategy is rebuilding supply chains, particularly
04:55 for semiconductors and batteries.
04:57 At the heart of Grenoble`s industrial territory lies one of France`s CEA sites, government-funded
05:02 technological research organization, which carries out innovation projects throughout
05:06 the industrial value chain.
05:10 The World Bank says the demand for critical raw materials is expected to increase by 500
05:14 percent by 2050 due to the acceleration of the green transition. These materials are
05:19 at the core of tomorrow`s industries, such as electric vehicles, as expert Simon Perrault
05:23 explains.
05:26 If France and Europe do not control the industrial value chain for batteries, then they will
05:31 not control their future energy systems.
05:34 Currently, China holds more than half of the production capacities across different segments
05:38 of the value chain. There is fierce competition in this field, so it is important to invest
05:44 and continue research and development to support this entire industrial ecosystem. For example,
05:50 by extending the autonomy of electric vehicles, using fewer critical materials and batteries
05:55 and developing battery recycling processes to recover more metals. And all of this at
06:00 a lower cost.
06:04 Making batteries with fewer critical materials is the goal of start-up All Energy, based
06:09 near Paris. They develop lithium-iron phosphate batteries without cobalt or manganese for
06:16 massive renewable energy storage or to power data centers.
06:20 We choose to use materials that can be found almost everywhere on the planet and can be
06:27 easily recycled. That will allow us to manufacture batteries that have a lifespan at least four
06:34 times longer than conventional lithium batteries and above all, are very responsive to digital
06:39 optimization.
06:42 Less powerful but more environmentally friendly, these batteries are adaptable thanks to artificial
06:47 intelligence. They cost 20 percent more than the ones imported from China. To stand out
06:51 in the highly competitive LFP battery market, it is necessary to produce a large quantity
06:56 and quickly.
06:57 The battery market, the industrialization of batteries is a global race. And so we are
07:03 engaged in this race, a race for investment, a race for technological breakthroughs to
07:07 stand out and be sovereign in our technological developments.
07:13 All Energy's hopes to open its first gigafactory by 2026. Diversifying the production chain
07:18 produced in Europe while continuing the digital and green transition, John Seaman reminds
07:22 us that this strategy comes at a cost.
07:25 It's certainly possible to diversify supply chains, including by setting up production
07:30 here in Europe. There are mines that are possible here in Europe, in Sweden for instance. But
07:35 all of this takes a lot of money, it takes a lot of investment and it takes a lot of
07:40 time. So there's a very long supply chain that you have to try to rebuild. And necessarily
07:44 that's going to translate into higher prices and higher inflation because it costs more
07:50 money to do that here in Europe than it does to do it somewhere else, particularly in China.
07:55 Thank you.
07:56 (upbeat music)