Friendshoring: the trend in commodity trade

Published on: 27 June 2023

Europe’s reliance on a handful of major exporters like China and, until recently, Russia for its raw materials is a concern for Brussels, prompting measures in line with Washington’s approach. Peter Verbaken, Head of Liquid Commodities at APG, critically assesses the plans of both Western trading blocs, noting that “while Europe wields a less blunt axe than the US, such may also be less effective.”


• The EU’s Critical Raw Materials Act represents a step towards greater autonomy in producing and processing raw materials.
• However, the EU remains reliant on imports. To diversify its supply lines and reduce dependence on specific countries, Brussels is adopting ‘friendshoring’.
• The US, through its Inflation Reduction Act, is pursuing a self-reliant approach, but its long-term sustainability remains to be seen.

Europe’s dependence on external sources extends beyond energy to other materials, such as metals, Verbaken explains. “Solving this dependency is not an overnight task. Europe faces challenges due to limited domestic raw materials, and it takes approximately ten years to establish a production facility like a mine. The Critical Raw Materials Act aims to increase the EU’s independence in raw material production, including from China. This poses a challenge, as the latter possesses significant metal supplies crucial for the energy transition.”

Friendshoring is the approach adopted by Brussels to address the total dependence on certain metals. Verbaken highlights recent developments: “Last month, for example, Portugal granted approval for a lithium mine. Additionally, the EU aims for a substantial portion of raw material refining to occur within its borders. A third aspect of the Critical Raw Materials Act can be described as friendshoring.” This involves establishing partnerships with friendly countries to reduce vulnerability in supply chains, similar to the approach seen in energy trade. A similar situation arose after Russia invaded Ukraine.

Brussels is exploring partnerships with countries like the US, Canada, and Australia, as well as Chile and Peru, which together account for a significant portion of global copper production. Verbaken emphasizes the growing importance of such partnerships in achieving the energy transition, given the demand for these metals. He anticipates an increase in the frequency of such collaborations.

United States

The European Critical Raw Materials Act is an answer to the Inflation Reduction Act in the US, which has freed up substantial subsidies to encourage investment in green technology and products like solar panels and electric cars. Verbaken observes, “Biden’s law goes pretty far, linking subsidies to the requirement that green products must be produced in the US. However, the extent to which Washington enforces this requirement remains uncertain. If all the metals required for an electric car and its battery had to originate from the US, they would really need to ramp up domestic production. The US will still need to rely, at least partially, on foreign countries for raw materials crucial to the energy transition.”

Currently, China supplies 90 percent of European imports of certain raw materials

While Europe’s Critical Raw Materials Act may not wield the same degree of forcefulness as its US counterpart, Verbaken argues that it is a necessary measure. He explains the dilemma faced by Europe in the energy transition: “How do you obtain the necessary raw materials when you lack them within the EU while at the same time striving to reduce dependence? Europe might not achieve complete self-sufficiency, but strategic partnerships offer greater long-term stability compared to the current reliance on one or two countries. The EU rule states that no more than 65 percent of the annual consumption of a specific rare commodity should come from one country.”

Although this may still indicate a degree of dependency, Verbaken stresses that the goals are ambitious. Currently, China supplies 90 percent of European imports of certain raw materials. The EU aims to reduce this percentage by one-third by 2030. “The objective is for 10 percent of critical raw material production to occur within the EU, with at least 40 percent of metals processed and 15 percent recycled within the region”, he adds. “Presently, these percentages are significantly lower. Therefore, the targets set by Brussels align with Europe’s ambitions and represent a step in the right direction towards strategic autonomy in raw material supply. It will be interesting to see if the EU achieves these goals by 2030 and what further ambitious plans it may unveil.”

Long-term vision

Time also plays a crucial role in this context. “The ‘America First’ approach assumes that you can immediately build a factory on your own soil and start the production line right away. However, it’s different when it comes to producing the raw materials required for that product. As mentioned, there’s typically a gap of around ten years between the initial plans and the actual production of, let’s say, a copper mine. Therefore, the production of these critical raw materials requires a long-term vision. The same applies to Europe’s plans. That is why the Critical Raw Materials Act ‘only’ mentions the production of just 10 percent of raw materials within the EU. More than that simply isn’t feasible within that timeframe.”

The Critical Raw Materials Act further demonstrates that globalization cannot be limited when it comes to raw materials, and international trade remains essential. “Among all the target percentages set by the law, the highest aim is to perform 40 percent of total raw material processing within the EU. This goal is relatively easier to achieve compared with having 10 percent of raw material production take place in Europe. However, even then, you are still dependent on other countries for the import of those raw materials. Ideally, as a country, you would import raw materials from multiple friendly nations with whom you have strong trade relations. That is how you prevent a geopolitical development from resulting in the closure of an essential supply line. Therefore, the EU’s shift from Russian gas to LNG from the US can be seen as a form of friendshoring.”


The economic powerhouses of China, the US and the EU have embarked on the path towards greater strategic autonomy in producing and processing critical raw materials. The possibility of self-sufficiency may be even more significant when it comes to raw materials used for food, such as wheat. “Any region capable of doing so will strive for that autonomy. However, there are still significant differences. For instance, the US and the EU can export wheat, while countries like China, Turkey and Egypt are major importers. The critical importance of the raw materials used for food for human consumption is precisely why there are no restrictions on their trade. Russia and Ukraine, for instance, are two of the largest wheat producers globally. Despite the devastating war between these nations, the international community continues to find ways to ensure that wheat exports from both countries are more or less maintained. It is, after all, a crucial element of global food security.”