When Chinese and American tourists are trying to figure out where to visit in Europe, the small, nondescript German city of Salzgitter is not exactly at the top of their lists. Located almost smack-dab in the middle of the country, barely anyone lived in Salzgitter until it became an industrial site in the late 1930s. Even today, only around 100,000 people call it home.

Despite this, Salzgitter is a nerve centre for Europe’s most important industry. Bosch, based in a similarly unremarkable exurb of Stuttgart, has its main motor control unit factory there. Most non-Europeans will mainly be familiar with Bosch for its consumer electronics, like stovetops and washing machines. But it is also the world’s largest auto parts supplier. This part of the business made up about three-fifths of the firm’s revenues last year. Bosch is, effectively, a car company with a white goods maker attached to it.

But Salzgitter is now in trouble, and Bosch’s problems there are a parable for what Germany, and Europe, face geopolitically. The company has said that it may have to furlough workers at the plant due to shortages of Nexperia-supplied semiconductors that the firm puts into the control units. Nexperia’s owner is Wingtech, a Chinese firm. After the Dutch government abruptly seized control of the firm, China slapped export controls on Nexperia. Since almost all of the company’s chips are packaged in China, the result is a virtual stoppage of supplies outside of the country.

This is potentially devastating for Germany’s car industry. The big German carmakers, like VW and Mercedes Benz, don’t deal with Nexperia directly. But their suppliers, like Bosch, do. According to Prewave, an Austrian supply chain analytics start-up, close to half of all European auto companies source chips from Nexperia. Without new inventory, these firms will run out of chips in a matter of weeks. The chips Nexperia makes aren’t particularly sophisticated, and buyers can source alternatives. But that will take them several months.

Even after that, however, the disruption might continue. Once suppliers like Bosch run out of chips, and can no longer supply to their customers, they will be forced to limit their own production. Then, so will their customers, the carmakers themselves. Before Bosch made its announcement about Salzgitter, VW said that it couldn’t rule out production stoppages at its own sites. Last week, Bild reported that from this week onwards, there would be stoppages affecting VW Golf production at the firm’s better-known Wolfsburg plant. Yesterday, the ACEA, Europe's automaker association, warned that assembly line stoppages were imminent.

When supply chain problems affect a critical part – and it doesn’t get much more critical than a motor control unit – it can disrupt production further downstream. Then the issue can cascade back upstream, to suppliers that have nothing to do with Nexperia or its chips. Germany’s car industry already experienced this shortly after the pandemic, when a chip shortage caused far-reaching supply chain snarls.

But this time, things are different. Germany’s government and industry have tools to deal with short-term disruption, most notably the country’s Kurzarbeit short-time work schemes. This state-subsidised furlough programme allows firms to scale down employees’ working hours, whilst state subsidies make up the difference in pay.

Being able to furlough workers rather than lay them off limits disruption if there are short-term problems. But for the car industry, the thing is that the problems aren’t just short-term, and this is not the only one. Germany’s industrial base also relies on China for rare earths – about 92% of the country’s supply comes from China. These go in a wide variety of different electric components, but are especially critical for electric cars. They have important defence-related applications too. A more sweeping series of rare earths export controls might end up being put on hold. But more limited ones, passed in April, are already causing problems for German companies.

Both of these, and the issues they threaten to cause for Germany’s industry, are indicative of a wider European problem, however. What’s happened over the last several decades is that it has built up strategic positions in a wide variety of sectors and industries. In the case of rare earths, this even dates back to Deng Xiaoping’s time as paramount leader of China.

China has done it off the back of a series of policies that are formally different to Europe’s, but resemble a turbocharged version of our own economic policies, and model. The country has used financial repression on a significant scale to keep borrowing costs low for firms, and foster new industries. Because of this, paired with China’s sheer size and strategic focus, it has built up commanding positions in any number of industries. In some of them, like electric cars, they now seriously threaten European incumbents. In others, like the Nexperia chips or rare earths, we rely on them.

The other side of the equation is our dependence on the US, especially but not exclusively for defence and security. One of the reasons the Dutch government did what they did with Nexperia was because of US pressure, thanks to its own potential for export controls. This isn’t the first time it has happened either. Previously, the US has leaned on the Netherland to successively restrict Chinese access to ASML chipmaking machines.

In geopolitical conflicts, as is emerging between the US and China, there are also opportunities. Countries that can balance these relationships can play the opposing sides off each other, to their effect. But European countries are, as of now, too reactive and divided to do that. Instead, what’s happening is that they are playing us off against each other, as the rebound of the Dutch decision on Germany shows. Towns like Salzgitter were, in their own way, creatures of geopolitics. It may also eventually prove to be their undoing.