strategic autonomy Archives

By Sandra Watson Parcels - China & Asia Team

The April 2026 Chinese State Council regulations on industrial and supply chain security introduce a compliance trap with no clean exit. Foreign companies operating in both Western and Chinese markets now face a structural dilemma: complying with Western export controls or sanctions may qualify as grounds for designation and penalty under Chinese law, while failing to comply risks Western penalties. This is not an incidental feature of the regulations. It is their strategic function. The regulations comprise two instruments, the Provisions on the Security of Industrial and Supply Chains and the Provisions on Countering Improper Extraterritorial Jurisdiction by Foreign States, and expand the capacity to investigate, restrict, and penalise foreign companies and governments accordingly. They are the latest iteration of a framework treating economic interdependence as an instrument of state power, one that has grown more institutionalised and operationally precise over time.

The Expanding Toolkit

China has built a set of interwoven economic pressure tools over the past several years. The April 2025 licensing controls on seven medium and heavy rare earth elements (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium) established Beijing's capacity to restrict access to materials where it controls over 80 percent of global processing capacity. While some extraterritorial features of later 2025 measures were suspended until November 2026, the core licensing framework remains active. The April 2026 supply chain security regulations extend this framework. The Provisions on Security of Industrial and Supply Chains permit Chinese authorities to designate foreign entities as threats to industrial security and impose escalating responses including trade restrictions, investment blocks, and visa limitations. The criteria for designation are extensive and include acts as routine as complying with foreign export controls or sanctions.

The counter-extraterritorial provisions operationalise this trap. The Provisions on Countering Improper Extraterritorial Jurisdiction give Chinese authorities broad discretion to penalise companies that comply with foreign controls, without requiring proof of intent. Complying with European Union (EU) or United States (US) rules is sufficient grounds for designation. The practical consequences are hesitation, delayed investment decisions, and in some cases withdrawal from market positions that would otherwise support allied supply chain goals. The legal framework does not require companies to choose China. It requires them to avoid choosing against it.

Strategic Patterns and Objectives

This approach follows patterns established in earlier measures where Beijing arranged economic instruments in response to actions it opposed, whether on Taiwan, technology security, or alliance coordination. The consistent objective has been to encourage restraint among governments and self-censorship among firms without crossing into armed conflict. The G7 trade ministers addressed this in their May 2026 statement from Paris, expressing concern about economic coercion through export restrictions that risk supply chain disruptions, particularly for critical minerals, and undermine economic security and resilience. That G7 trade ministers felt compelled to address this directly in a formal communiqué reflects how far the issue has moved from technical trade policy into the domain of security strategy. Western policy frameworks have yet to fully institutionalise that shift. The strategic logic is to slow or complicate moves toward supply-chain independence in sectors including defence, electric vehicles, renewables, and advanced manufacturing. By concentrating leverage at processing chokepoints rather than raw material extraction alone, the approach creates costs that are asymmetric and difficult for individual states to absorb unilaterally.

Implications for Europe and Allied Partners

European states, including Italy, face direct exposure. Many industries remain dependent on Chinese processing capacity for critical minerals used in batteries, defence systems, and green technology. European defence procurement in particular relies on rare earth elements for guidance systems, radar, and propulsion technologies where alternative processing capacity outside China remains limited. The April 2026 regulations mean companies with exposure in both markets now face that compliance trap directly. The compliance trap does not affect companies in isolation. When one state faces economic pressure, others frequently hesitate to act in solidarity, which deepens instead of eases vulnerability. This fragmentation is what the regulatory framework exploits. But fragmentation is not inevitable. It reflects political incentives that individual states have so far been unwilling to override. Understanding why collective hesitation persists matters as much as documenting it.

North America illustrates both the exposure and the gap. American companies operating in China that comply with US forced labour due diligence or technology transfer requirements now risk designation under the new regulations. What a compliance officer treats as routine legal obligation, Chinese authorities may treat as a qualifying act. Canada's experiencefollowing the Meng Wanzhou arrest demonstrated how targeted pressure can leave a middle power with limited unilateral options, and the broader pattern holds: collective resistance breaks down as individual states calculate that bilateral accommodation is less costly than holding a common line. For middle powers, the compliance trap is easier to navigate collectively than alone. Canada's positioning on critical minerals compounds this. The advantage cited in recent policy discussions rests on extraction capacity, not processing capacity. Canada extracts. Others process. That is the specific gap the current regulatory leverage exploits.

Policy Considerations

Addressing this challenge requires treating economic coercion as structural, not periodic trade friction. Generic diversification language understates what that requires. Public investment should target processing capacity in allied jurisdictions directly, since extraction diversification alone does not address the chokepoint through which current leverage operates. For the G7 and EU, this means jointly funding processing infrastructure rather than leaving it to market incentives that have so far failed to close the gap. Within NATO, early warning and coordinated response mechanisms for economic coercion deserve the same institutional attention currently given to cyber threats. For companies, resilience planning should map exposure at the processing stage specifically, not just at the extraction or finished goods level, since that is where the compliance trap bites hardest. Due diligence frameworks and open market arrangements among allied and partner states would reduce the dilemmas companies currently face, but only if governments provide clarity on which compliance obligations take precedence and under what conditions. The compliance trap is a legal design. Dismantling it requires a legal and institutional response, not only a supply chain one.

Concluding Assessment

The April 2026 regulations add legal precision and institutional reach to a framework that has been developing for several years. The compliance trap they formalise is not a byproduct of competing regulatory systems. It is a structural feature designed to raise the cost of coordinated responses while remaining below the threshold of direct confrontation. The chokepoint is processing, not extraction, and current Western policy responses have not consistently targeted it. Treating these instruments with the same analytical seriousness as military or cyber threats is warranted, not because the risks are equivalent, but because the effects on industrial capacity, alliance cohesion, and strategic autonomy are consequential and harder to reverse. The vulnerabilities are understood. The processing gap is specific enough to act on. The question is whether policy follows analysis.

by Eline Stensen Gulliksen - UK & European Desk

Introduction

Increased geopolitical tensions caused by a war on the European continent and the re-election of Donald Trump, a NATO sceptic, as president of the United States have brought the question of the EU's military capabilities back to the agenda. America has been a well-recognised backbone of European security through NATO; however, recent discussions concerning the need for a “stronger Europe” with more capabilities have arisen. The Common Security and Defence Policy (CSDP) is the umbrella that covers EU defence matters, and the European Defence Agency (EDA) is a body under the CSDP aiming to improve the defence capabilities of the EU by coordinating efforts with member states. This blog article will examine some structural bottlenecks that the EU needs to face on their way to the strategic autonomy it has longed for.

Challenges and opportunities for further EU defence cooperation.

The EDA's work coordinating efforts between member states has numerous positive effects for member states and the EU. Firstly, this joint procurement will make spending more effective and, hence, more targeted, enabling member states to spend better. This can further lead to more specialised military equipment and innovation. Initiatives the EDA has launched, such as permanent structured cooperation (PESCO) and the new project on hybrid drive trains for military vehicles launched on December 11^th 2024, show a positive trend towards cooperation on EDA projects with positive outcomes.

The EDA assists member states' militaries in collaborating effectively, maintaining “open doors” for cooperation among two or more states. This can help prevent the emergence of different systems that create bottlenecks for efficient collaboration in areas such as information sharing and the ability to manage one another's weapon systems when it is necessary to coordinate actions, either through CSDP or NATO missions where EU states are to take the lead. Although efforts and initiatives through the EDA, such as PESCO, have been launched to help EU member states coordinate efforts more effectively to increase the capabilities of the CSDP, some structural bottlenecks need to be addressed. Integrating defence projects and industries can be tricky due to the intergovernmental nature of the CSDP in the EDA. Projects depend on member states’ initiatives and willingness to cooperate on these matters, as defence and military are core interests to sovereign states due to the anarchic nature of the international system. States may be cautious about further integrating within these areas because of security implications.

Building on the above, the diverging national interests of member states based on various aspects such as geography, resources, threat perception and strategic culture create differences among states' willingness to enter EDA projects. Another aspect that needs to be considered is the EU’s reliance on the United States. As long as many EU states see the US as a security guarantor, it does not incentivise member states to increase the military capabilities of the EU. However, with Donald Trump's recent election as President of the United States, the EU should re-evaluate this idea and strive for more autonomy, especially after the Munich security conference where tensions with the US developed further, and now, as discussions arise about negotiating a peace deal between Russia and Ukraine, and the EU does not have a seat at the table.

The EDA has numerous opportunities if member states align and integrate properly and effectively through joint projects. The EU has a strong political will, and increasing its capabilities through the EDA will make it a more credible actor in the international system and make it more autonomous in its neighbourhood, which is precisely what the EU needs in these critical times. With a more “capable” CSDP through EDA projects, the EU could finally get the strategic autonomy it has longed for and cut reliance on the US as a security guarantor while balancing them, which would reverse the security implications of the US threatening to leave NATO. Improving the EU´s crisis response could be a massive opportunity for the EU, further building on the credibility of the EU in the international system. Looking at when EU states, France and the UK (the UK left the EU in 2020) were to take the lead in the 2011 NATO-led operation in Libya, it clearly showed the weaknesses of the EU to act autonomously in its neighbourhood due to a divergence in systems and a lack of capabilities. If EU member states coordinate efforts through EDA initiatives, this could provide great opportunities for the EU’s actorness.

*Flag of Ukraine in liberated Kherson - rawpixels.com*

Potential threats that successful EDA cooperations could face include friction with NATO. Further defence integration between EU states and increasing the capabilities of the EU could be seen as undermining NATO, which could further affect the EU’s relationship with the US. Therefore, the EU needs to have close dialogues with the US as they are improving its capabilities. Divergence in member states' economies in the EU could lead to budgetary constraints and inequitable burden-sharing between member states. This could create fragmentation between EU member states since the EDA projects are “volunteer” and create inefficiency and potential new problems for the EU to face internally.

Conclusion

Concluding this blog article, a recommendation is for the EU to cooperate closely with NATO, especially the US, through the processes of EDA projects. Keeping NATO and the US in the loop could prevent friction with crucial powers and security guarantors on Europe´s way to gaining more autonomy. As mentioned earlier in this article, a structural bottleneck for successful projects is the intergovernmental nature of the CSDP and the EDA. A recommendation is, therefore, to make more projects mandatory for all EU member states and have a set percentage of GDP that each country should contribute to prevent friction over burden-sharing internally.

The Strategic Logic of China’s April 2026 Supply Chain Regulations