Back to the Seventeenth Century

The ongoing spat between the American and Chinese governments over export restrictions—especially concerning rare earth materials—has been dubbed a new “supply chain” trade war. As reported by the Wall Street Journal in its piece titled (“Supply Chains Become New Battleground in the Global Trade War,” June 11, 2025):

A key lesson from the latest skirmish in the U.S.-China trade war: The era of weaponized supply chains has arrived.

When governments flex their muscles in international trade, they often resort to weaponization—using tariffs and other trade barriers to favor selected domestic producers at the expense of both domestic consumers and competing producers. This tactic is as old as trade itself.

The current export conflict is reminiscent of the mercantilist policies of the 17th and 18th centuries, where nations frequently restricted both imports and exports. For instance, during bad harvests, countries like France would ban grain exports to stabilize local prices, while Britain once prohibited the export of machinery to stifle foreign competition in textiles. Such embargoes were not just economic tools; they were weapons of war.

As some economists wittily note, protectionism is a self-inflicted wound that rivals the damage inflicted by foreign adversaries during wartime. However, it’s essential to remember that this “self-infliction” often benefits a select few at the expense of many.

Rare earth elements, crucial for manufacturing everything from high-tech gadgets to military hardware, are at the center of this trade altercation. A ban on their export from China would likely spike prices globally, forcing industries to seek less efficient alternatives. For instance, the price of dysprosium has more than doubled in the last two months alone. Many outside the economic sphere overlook how critical price signals are in preventing shortages. While substitutes exist, they often come with trade-offs in efficiency and cost (as discussed in my previous post, “War and the Economic Concept of Substitution”). Notably, about 30% of rare earths can be found outside of China, including within U.S. borders. It’s true that the lion’s share of processing happens in China and that establishing new processing plants takes time; however, at least one private company is already laying plans for such a facility in the U.S.—a point highlighted by Don Boudreaux (see also “Rare-Earths Plants Are Popping Up Outside China,” Wall Street Journal, May 18, 2025).

This modern trade war was ignited by Donald Trump’s administration, which launched an offensive against Chinese imports. As China retaliated, the U.S. doubled down on tariffs. A mid-May meeting in Geneva saw some tariffs rolled back, but the cycle of retaliatory measures resumed when China imposed limits on rare earth exports, and the U.S. amplified its controls on semiconductor technology and reduced Chinese student visas. On June 5, Mr. Trump, having waited fruitlessly for a conciliatory call from Mr. Xi, finally reached out directly.

Subsequent discussions between high-level aides from both nations in London resulted in a tentative agreement to revert to the Geneva framework. In exchange for China easing its restrictions on rare earth and magnet exports, the Trump administration proposed a relaxation of its own controls regarding jet engines, ethane sales, and Chinese student visas (“Trump Has No China Trade Strategy,” Wall Street Journal, June 11, 2025). However, the editorial critiqued the lack of clarity surrounding the details of this “framework.”

After professing boldly that “trade wars are good and easy to win,” it seems the leader of a significant national bloc has had to resort to a less-than-grand approach, essentially pleading with another major bloc to allow the importation of essential goods. The irony here is rich—where once there were threats, now we have negotiations bordering on supplication. The rhetoric of “I will restrict trade” can swiftly shift to “I need what you have!”

Looking through the lens of the everyday citizen rather than that of the ruling class, it becomes evident that the freedom for individuals and their private entities to engage in trade is critical for fostering prosperity, peace, and security.

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