Welcome to the Brussels Edition. I’m John Ainger, Bloomberg climate and energy reporter, bringing you the latest from the European Union. Make sure you’re signed up.

Just when things looked to be getting a bit calmer for global commerce, we’re back in the midst of a resurgent tit-for-tat between the US and China, with the EU again caught in the middle.

It all kicked off last week when China unveiled broad new curbs on exports of rare earths — even items with small traces of them — and other critical materials. The move came as officials in Beijing prepare for a high-stakes meeting this month between US President Donald Trump and his Chinese counterpart, Xi Jinping.

It’s left businesses across the global semiconducter supply chain, including Europe’s ASML, scrambling with the prospect of weekslong delays in crucial shipments.

Trump last week threatened to impose an additional 100% tariff on China, as well as export controls on “any and all critical software” beginning Nov. 1. China’s latest retaliation today is triggering a stock-market slump.

All eyes are on what kind of response Europe will be able to muster.

Michal Baranowski, Poland’s deputy economic development and technology minister, told my colleague Jorge Valero that China’s restrictions marked a “worst-case” scenario by weaponizing Europe’s dependency on rare earths.

Others at a meeting of trade officials in Horsens, Denmark, called for a robust response.

EU trade chief Maroš Šefčovič told reporters that the Group of Seven should try to hold a video call soon to coordinate and he would also seek a call with Chinese counterparts next week.

While the EU will likely stop short of imposing retaliatory tariffs, it’s already planning to put up new guardrails for Chinese investments on the continent as part of a package of proposals to shield its industry and automotive sector later this year, according to our latest report.

The measures being considered could force Chinese firms to transfer technology to European companies if they want to operate locally, as well as include new requirements to use domestic labor and resources, sources say.

Such restrictions would mark a step change on how the EU deals with Chinese investments, and could risk deepening the conflict between the two sides.

The Latest

• French Prime Minister Sébastien Lecornu will address parliament today in a make-or-break moment for his fledgling government in its effort to pass a budget and restore a degree of political stability.
• Ukrainian President Volodymyr Zelenskiy plans to meet with Trump in Washington this week to discuss air defense, long-range weaponry and energy as Russia intensifies strikes on his nation’s power network.
• Germany is set to approve the purchase of about €7.5 billion of additional military equipment as soon as this week as part of its drive to modernize the armed forces and confront the growing threat from Russia.
• EU lawmakers agreed to move ahead with major cuts to a set of sustainability directives, after intense pressure from the bloc’s biggest member states.
• Nicolas Sarkozy is next week poised to become the first former French president in the modern era to go to jail, following his conviction for taking part in a conspiracy to seek covert funding from Libya’s late dictator Moammar Qaddafi.
• Luxury fashion giants Gucci, Chloé and Loewe have been hit with EU fines totaling more than €157 million for imposing illegal price curbs.
• Czech billionaire Andrej Babiš said he’s focusing on drafting a joint program for government with two potential allies —  the far-right Freedom and Direct Democracy, or SPD, and the populist Motorists — after his ANO party scored a resounding victory in this month’s parliamentary elections.

Seen and Heard on Bloomberg

Europe should try to avoid getting caught up in the latest US-China trade tensions, according to Craig Cameron, Head of European Equities at Franklin Templeton. He told Bloomberg Radio’s Stephen Carroll that avoiding direct confrontation helped soften Trump’s tariffs and could now attract Chinese investment, while letting the continent focus on its own priorities.

Chart of the Day

Europe, long known as more of a tech regulator than an innovator, is moving with renewed urgency to claim its piece of the AI boom. Its scarce tech giants, SAP and ASML, have recently committed billions of euros to homegrown AI startups and services tailored to the bloc. We explain here how Europe’s push mirrors global efforts — from Canada to South Korea to the Middle East — where governments are keen to avoid ceding too much of the AI market to the US and China.

Coming up

• European Commission President Ursula von der Leyen holds a press conference this afternoon with Borjana Krišto, chairwoman of the Council of Ministers of Bosnia and Herzegovina
• EU Economy Commissioner Valdis Dombrovskis speaks later today at an American Enterprise Institute event “ The Transatlantic Partnership in a Changing World” in Washington
• EU and NATO Defense Ministers meet in Brussels tomorrow

Final Thought

Montenegro Central Bank Governor Irena Radovic. Photographer: Martin Bertrand/Getty Images

Montenegro is taking inspiration from Trump on how to strong-arm its central bank. Politicians in the Western Balkan country, which hopes to join the EU, dislike some bank’s decisions and have targeted its premises and finances. And, borrowing tactics used by the US president to persuade the Federal Reserve to cut interest rates, the attacks have intensified as Governor Irena Radović pushed back. Von der Leyen’s trip there this week underscores how closely Brussels is watching.

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