ECB Warns China’s Rare Earth Curbs May Fuel Inflation in Europe

The European Central Bank has flagged China's export restrictions on rare earth materials as a potential inflationary trigger for Europe. Estonia's central bank governor, Muller, emphasized that while current interest rates remain appropriate, policymakers must vigilantly monitor trade developments that could disrupt price stability.

Trade tensions escalated as Beijing imposed new regulations requiring foreign firms to obtain government approval for exports containing trace amounts of Chinese-sourced rare earths. The MOVE prompted a retaliatory threat from US President Donald Trump, who proposed a 100% tariff on Chinese goods, stoking fears of a full-blown trade war.

Contrary to expectations that additional tariffs WOULD cause deflation, Muller argued that supply shortages of critical materials could instead drive up prices for certain goods. This dynamic emerged as a key discussion point during preparations for the IMF's 2025 annual meeting in Washington, where global trade frictions will take center stage.