The conflict between the American and Chinese governments about the restriction of exports—rare earths in one direction and other goods in the other direction—has been branded a new “supply chain” trade war. The Wall Street Journal wrote (“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.
Weaponization is what governments do when they intervene in the affairs of others. Not only do they weaponize trade against foreign rulers, but tariffs and other trade barriers are a weapon for a government to favor some domestic producers against domestic consumers, as well as against other domestic producers.
The conflict over exports marks a return to the 17th and 18th centuries. National governments frequently restricted not only foreign imports but also foreign exports. Grain exports were banned when bad harvests caused prices to rise or government price controls caused shortages. In France, even grain movements between regions were controlled. As I explained in a previous post, the British government once forbade the exportation of some machinery to prevent foreign textile manufacturers from competing with domestic manufacturers. It also tried to prevent the emigration of specialized workers familiar with these machines. Embargoes were weapons of war.
As economists have quipped, protectionism is what we do to ourselves that is done by foreign enemies in time of war. Of course, the “what we do to ourselves” must be read as “what some of us do to others among us.”
Rare earths are chemical elements found in minerals and used in the fabrication of magnets and many high-tech products with both civilian and military use, as is true of many goods. Restricting or blocking their exportation from China would increase their prices in the rest of the world and thus reduce their use to their next most valuable ones. For example, the price of dysprosium more than doubled in the past two months. People not familiar with economics often ignore the role of prices in avoiding shortages. Note also that substitutes virtually always exist, but the less perfect a substitute is, the less efficient or more costly its use will be (see my post “War and the Economic Concept of Substitution”). Moreover, 30% of the rare earths are located outside China, including in the US. It is true that nine-tenths of their processing is concentrated in China and new plants take time to build, but at least one private company is already planning one in the US—an argument made by Don Boudreaux (see also “Rare-Earths Plants Are Popping Up Outside China,” Wall Street Journal, May 18, 2025).
In the current situation, the US government, in the person of Donald Trump, launched a trade war. As the Chinese government retaliated, the US government further increased the tariffs on goods imported from China. In mid-May, a meeting of the two governments’ representatives in Geneva partially rolled back tariffs and paused the cycle of retaliation. But the Chinese government later limited the export of rare earths while the US government intensified its export controls on chips and on education (by limiting Chinese student visas in America). On June 5, Mr. Trump, who had waited in vain for a submissive call from Mr. Xi and lied about receiving one, finally blinked and phoned him.
A two-day meeting between cabinet-level aides of the two camps followed last week in London. The two delegations agreed on an unpublished “framework” to revert to the Geneva agreement. In exchange for the Chinese government temporarily easing its restrictions on rare-earth and magnet exports to America, the Trump administration proposed to relax its own restrictions on the sale of jet engines and ethane as well as on Chinese student visas (“Trump Has No China Trade Strategy,” Wall Street Journal, June 11, 2025). But, as the editorial says, “details are few.”
After once declaring pompously that “trade wars are good, and easy to win,” the ruler of a great national collective more or less begged the ruler of another large collective to please let us import what we need! Since collective rulers, in their grandeur, don’t like to beg, threats are never far behind their deals. “I will forbid my subjects to import from and export to yours,” can morph into “I will get from you what I want.”
Looking at all that from the point of view of the ruled instead of the rulers, which is what we should do, the liberty of individuals and their private organizations to trade is a necessary condition for prosperity, peace, and security.
******************************
Yahoo! Back to the Seventeenth Century, by Pierre Lemieux and ChatGPT
