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Germany at Risk Over Dependence on China for Imported Raw Materials

A report by IW Consult and Fraunhofer ISI, commissioned by KfW Research, highlights Germany’s reliance on imports for critical raw materials such as copper, lithium and rare earth elements (REEs). Nearly a third of Germany’s manufacturing gross value added comes from copper products, 10% from lithium products, and 22% from REE-containing products. Automakers, electronics and optics manufacturers are particularly reliant on imports.

The German markets for such products are dominated by a few major suppliers. The report says that a third of Germany’s lithium as well as 19% of its copper and REE imports are subject to supply chain risk. The largest known REE deposits are in China, while reserves in Greenland, Canada and Sweden remain underexplored. Germany’s top three lithium and REE suppliers control over 80% of German market share for those commodities. Furthermore, Russia’s copper and Chile’s lithium carbonate (which comprises 72% of German lithium carbonate imports) are crucial in Germany’s supply chain. Altogether, China accounts for 84% of German REE imports.

Matthias Wachter from the Federation of German Industries (BDI) compared Germany’s dependence on China for raw materials to the dependence on Russian natural gas [before the 2022 Russian invasion of Ukraine]. He said that imports have reached “the highest level of risk” and that the danger lies “not in availability of such materials but in the [geographic] concentration within China of their production.” He added, “this high degree of dependence makes people vulnerable to threats and blackmail. China has shown that it can regulate these key areas by imposing export controls on some rare earths.”

Fritzi Köhler-Geib, Chief Economist at KfW, said that there may be initial costs to pay in securing resilience throughout Germany’s supply chain, but the resulting stability and flexibility are necessary prerequisites for enabling the green transition and digital transformation. Cornelius Bähr, Senior Advisor at the German Economic Institute, stressed the importance of German supply chain diversification, exploration of substitutes for key raw materials, expansion of domestic resources, and recycling [of key supply chain inputs]. He cautioned that there could be economic consequences, e.g. forgone EV production, if imports such as lithium are disrupted.

Source: Deutsche Welle, March 17, 2024