EU Proposes New “Diversification Instrument” To Cut China Supply Chain Reliance On Chips & Rare Earths

European Union trade commissioner Maroš Šefčovič has proposed the creation of a diversification instrument designed to mitigate Europe’s reliance on single suppliers for critical technology components, specifically semiconductors and rare earth elements.

The proposal was introduced on June 5, 2026, during the European Policy Center’s Brussels Economic Security Forum. The initiative seeks to strengthen the resilience of the European tech ecosystem by preventing over-dependence on a limited number of external providers.

Mandated Supplier Diversification

Under the proposed framework, the EU would implement a tool requiring companies operating within sensitive sectors to diversify their procurement strategies. The instrument would mandate that these firms source their critical materials and components from at least three different suppliers.

This requirement is intended to ensure that the failure or restriction of a single supplier does not lead to systemic disruptions across the European economy, particularly in industries that rely heavily on advanced chips and rare earths for manufacturing, and innovation.

Reducing Dependence on China

The primary objective of the diversification instrument is to break the existing dependence on Chinese supply chains. China currently maintains a dominant position in both the processing of rare earth minerals and the production of various semiconductor components.

By forcing companies to seek alternative sources, the EU aims to reduce the geopolitical and economic risks associated with relying on a single nation for the raw materials and hardware essential to modern technology.

Rare earths are critical for the production of permanent magnets used in electric vehicle motors, wind turbines, and various defense applications, while semiconductors are fundamental to nearly all electronic devices and industrial automation systems.