The End of Free Trade: China Just Went for the Jugular

Don’t worry, we’ll just dig our own—how hard can it be?

For decades, we’ve been told that free trade keeps the world out of trouble. The logic was simple: if countries are busy buying, selling, and shipping each other’s goods, they won’t have time to start shooting. And for a while, it worked. The world got richer, global supply chains stretched around the planet, and we all got used to cheap electronics and $30 toasters.

But free trade only works if everyone keeps playing by the same rules—and lately, those rules look more like suggestions. Last week, that illusion cracked. On the eve of another government shutdown, the U.S. Department of Commerce closed a long-standing export loophole that Chinese companies had been using to dodge earlier tariffs. If a blacklisted company owned 50% or more of another firm, that subsidiary is now banned too. What looked like a simple technical correction in Washington landed like a grenade in Beijing.

China saw it as betrayal. They’d just agreed to a temporary truce in the trade war, and now the U.S. was moving the goalposts again. So Beijing fired back with a weapon it’s been polishing for decades—control of the world’s rare earth elements. New export restrictions now require licenses for any foreign company using Chinese rare earths or magnet technologies, whether those materials are mined inside China or processed with Chinese methods abroad. In short, China just told the world it controls the raw materials that make modern life possible—and it’s willing to use that leverage.

Trump responded the way Trump always does: with tariffs and a megaphone. He announced new 100% duties on Chinese imports, tanking global markets overnight. The talking heads called it “trade friction.” Let’s not sugarcoat it. It’s a trade war, and this time, both sides are swinging for the head.

If this feels familiar, that’s because it is. History is full of moments when a dominant trading nation tries to keep its grip while a rising power decides it’s had enough. When Venice ruled Europe’s spice trade, the Ottoman Empire blocked their routes and forced Europeans to fund explorers to find another way to India. When England banned Dutch ships from its ports in the 1600s, the Dutch fought three wars before losing global trade supremacy. OPEC tried to strangle the West in the 1970s, and all it did was push America to drill its own wells. Even Japan in the 1930s thought resource control could secure its empire—until the U.S. shut off the oil and Japan lashed out in the Pacific. Different century, same plotline.

China’s move fits right into that script, except the resources are modern: rare earths, semiconductors, and high-performance magnets. They’ve built an empire on the back of cheap labor and Western capital, and now they’re trying to weaponize it. The problem is that their window is closing. China’s population is shrinking, youth unemployment is rising, and the real estate bubble has already popped. For all the talk about long-term strategy, this feels more like a desperate swing—a country trying to cement superpower status before the demographics pull the rug out.

Every embargo in history ends the same way: the world adapts. When OPEC squeezed oil, the U.S. found shale. When Japan ran out of steel, America rebuilt its own navy. When Venice lost its spice routes, Europe discovered the rest of the planet. The same story will play out again. The U.S., Canada, and Australia will pour money into domestic rare earth processing. The CHIPS Act will ramp up semiconductor independence. And Western industries will slowly rewire themselves around China instead of through it. What looks like dominance today will look like overreach tomorrow.

The bigger story here is the unraveling of the global order built after 1971—the one where the U.S. dollar refereed the world economy, shipping lanes stayed open, and everyone agreed that specialization and cheap imports were worth the trade-offs. That system only works when trust holds. Right now, the trust is gone, and the referees are fighting each other. We’re headed back to a world of regional blocs—China and Russia hoarding resources, the U.S. and Europe rebuilding manufacturing and finance, and everyone else trying to pick a side. Prices will rise, shortages will spike, and inflation won’t just be a bad quarter—it’ll be the cost of doing business.

Free trade was supposed to keep the peace, but pride, politics, and fear always find a way to screw that up. China’s latest move isn’t the start of a trade war; it’s the end of the illusion that trade would prevent one. It’s the same story that’s played out a dozen times before—one power tries to corner the market, the other realizes too late it’s been paying for its rival’s rise, and the rest of the world foots the bill.

And really, you’d think China would know better. This is the same civilization that gave us the idea of balance—yin and yang, harmony in opposites. Maybe they should’ve remembered that before deciding to tip the scales.

For more on this, check out Doomberg’s full article here: https://newsletter.doomberg.com/p/gloves-off