To reduce dependence on China, the EU plans to force companies to purchase components from other suppliers.

Reports indicate that the EU is developing a plan to force European companies to source key components from at least three different suppliers in order to reduce the EU's dependence on China.

The Financial Times reported on Monday (May 18), citing two knowledgeable EU officials, that the new rule will affect companies in a few key sectors, such as chemicals and industrial machinery, which have complained of a surge in cheap Chinese imports. The new measures are aimed at responding to Beijing's export restrictions on critical technologies.

The new law will cap the percentage of components that can be sourced from a single supplier, estimated at around 30% to 40%; the remaining components must come from at least three different suppliers, and these suppliers cannot be from the same country.

Officials familiar with the matter revealed that EU Trade Commissioner Šefčovič hopes to address the EU's daily trade deficit of up to €1 billion (approximately S$1.5 billion) and protect businesses from China's "weaponization of trade." Last year, Beijing imposed export controls on rare earth magnets and other components, forcing some European car production lines to shut down.

According to informed officials, Shevchovich plans to impose punitive tariffs on Chinese chemical products and machinery in an effort to curb soaring tariffs that have been devastating European manufacturers.

A senior European Commission official said: "I am becoming increasingly reliant on Chinese exports in many sectors. This reliance comes at a cost, so we must redouble our efforts to diversify."

He pointed to China's massive investments in manufacturing and the International Monetary Fund's (IMF) claims that China provides substantial subsidies to certain priority industries, all of which pose an imminent threat to the EU's industrial base. The Chinese government, in turn, claims its industrial policies are exaggerated and accuses the EU of pursuing protectionism under the guise of "fair competition."

EU officials say the plans are still in their early stages but will be presented at a European Commission meeting on China on May 29. If commissioners agree, detailed proposals could be approved by EU leaders at the EU summit at the end of June.

Another official pointed out that these plans are not only aimed at China, because some raw materials or chemical ingredients mainly come from a few countries. For example, helium comes from the United States and Qatar, and cobalt comes from Congo and Indonesia.

The European Commission did not immediately respond to the Financial Times' request for comment.