Trade Wars and National Security: Navigating Supply Chain Risks and Economic Coercion

Trade Wars and National Security: Navigating Supply Chain Risks and Economic Coercion

Posted on InsightOutVision.com | Category: News | Sub-Category: Business & Economy

In today’s interconnected world, trade isn’t just about goods crossing borders—it’s a battlefield where national security, economic power, and global influence collide. From semiconductors to critical minerals, supply chain vulnerabilities expose nations to risks that go far beyond economics. Meanwhile, tools like tariffs and export controls are being wielded as shields to protect strategic interests, but at what cost? This blog post dives into the complex intersection of trade and national security, exploring how supply chain weaknesses and economic coercion shape global strategies—and what it means for the future.

The New Geopolitics of Trade

Trade has long been a driver of prosperity, but it’s increasingly a tool of geopolitical leverage. The United States, China, and other global powers are redefining trade policies to prioritize national security over open markets. The COVID-19 pandemic, Russia’s invasion of Ukraine, and escalating U.S.-China tensions have exposed how fragile global supply chains can be. A single disruption—like China’s 2025 ban on exports of gallium, germanium, and rare earth metals—can choke industries from semiconductors to aerospace, threatening both economic stability and defense capabilities.

The stakes are high. Dependence on foreign suppliers for critical goods—think chips for AI, rare minerals for batteries, or even pharmaceuticals—creates vulnerabilities that adversaries can exploit. China’s dominance in critical mineral processing, for instance, gives it leverage to manipulate prices or restrict exports, a form of economic coercion that can cripple economies. The U.S. has responded with a “promote-protect-partner” framework, balancing domestic investment, trade restrictions, and alliances to secure supply chains. But this approach faces a trilemma: prioritizing domestic industries and technology protection often strains partnerships with allies.

Supply Chain Vulnerabilities: A National Security Risk

Global supply chains are marvels of efficiency but also Achilles’ heels. The automotive industry, for example, relies on parts crossing borders multiple times before final assembly. A Ford Bronco Sport imported from Mexico may contain 30% U.S.-made components, yet a 25% tariff on Mexican imports could raise costs, hurt American workers, and disrupt production. Similarly, the U.S. imports $47 billion in minerals from Canada, a key ally. Tariffs or trade restrictions here could undermine efforts to diversify away from China’s grip on critical minerals.

The pandemic highlighted these risks. Shortages of masks, ventilators, and semiconductors revealed how over-reliance on single suppliers—often in adversarial nations—can paralyze economies. China’s control over 30% of imports for 13 of 14 Indo-Pacific Economic Framework (IPEF) countries underscores its ability to wield economic coercion. This isn’t just about trade deficits; it’s about the potential for adversaries to weaponize supply chains, cutting off access to essential goods during crises.

Tariffs: A Double-Edged Sword

Tariffs have become a go-to tool for protecting national security and boosting domestic industries. In 2025, the U.S. imposed sweeping tariffs—25% on Canada and Mexico, 145% on China—under the “America First Trade Policy” to address trade imbalances and secure critical industries like steel and semiconductors. These measures aim to reduce reliance on foreign goods, protect jobs, and counter economic coercion. For instance, U.S. steel output rose 22%, adding 45,000 jobs, while semiconductor firms gained $12 billion in venture funding.

But tariffs come with trade-offs. They raise costs for consumers—American households paid an extra $1,277 annually due to higher prices—and disrupt supply chains. U.S. farm exports dropped 14% as China sourced soybeans from Brazil, showing how retaliation can hit exporters hard. Economists warn that prolonged tariffs could shave 0.9% off U.S. GDP by 2027 and up to 8.9% by 2054 in some scenarios. Moreover, tariffs on allies like Canada and Mexico risk alienating partners needed for collective security against China’s influence.

Export Controls: Guarding Technology, Limiting Trade

Export controls are another weapon in the national security arsenal, designed to keep sensitive technologies out of adversaries’ hands. The U.S. has tightened rules on semiconductors, banning sales of advanced chips and manufacturing equipment to Chinese firms. In 2023, the Bureau of Industry and Security (BIS) expanded controls to cover 43 additional countries to prevent circumvention, blacklisting 13 Chinese AI firms deemed threats. These measures aim to maintain U.S. technological leadership, critical for both economic competitiveness and defense.

Yet, export controls can backfire. Unilateral restrictions risk isolating U.S. tech firms, as allies develop their own supply chains or “design out” American components. China’s retaliatory export bans on critical minerals show how tit-for-tat measures escalate tensions, disrupting global markets. Businesses face higher costs and regulatory uncertainty, forcing companies like Apple to shift 15% of iPhone production to Vietnam to dodge tariffs and controls.

Economic Coercion: The Hidden Threat

Economic coercion—using trade as a weapon—looms large. China’s export restrictions on rare earths and its influence over Global South markets demonstrate its ability to pressure other nations. The U.S. counters with tariffs and sanctions, but these risk alienating allies. The EU, for instance, has threatened to use its Anti-Coercion Instrument (ACI) to impose retaliatory tariffs if U.S. policies harm European interests.

This cycle of coercion and retaliation fragments global trade. The U.S.-China trade war could collapse direct trade between the two, with Chinese goods rerouted through third countries like Vietnam and Mexico, which saw a 37% surge in U.S. exports in 2025. This reconfiguration sacrifices efficiency and transparency, raising costs and complicating rules of origin.

Balancing Act: Promote, Protect, Partner

The U.S. is navigating a delicate balance. The CHIPS and Science Act and Inflation Reduction Act have spurred over $900 billion in private investment in chips, clean tech, and manufacturing, aiming to bolster domestic resilience. But protecting technologies through tariffs and export controls often clashes with partnering with allies. The “economic security trilemma” means prioritizing two goals—say, promoting domestic industries and protecting technology—may sacrifice the third, like deep integration with allies.

Multilateral cooperation is key. The U.S. needs Canada for critical minerals, Europe for tech innovation, and Indo-Pacific partners for supply chain diversification. Yet, tariffs on allies strain these relationships, undermining collective efforts to counter China. A more ambitious trade agenda, including digital trade agreements, could align economic and security goals without alienating partners.

The Road Ahead

The intersection of trade and national security is a high-stakes game. Tariffs and export controls can protect strategic interests but risk economic fallout and diplomatic tensions. Supply chain vulnerabilities demand resilience, yet overprotectionism could isolate the U.S. from allies and markets. As global trade fragments, businesses face rising costs, and consumers bear the burden of higher prices.

The U.S. must innovate to stay ahead—investing in technology clusters, R&D, and clean energy infrastructure while fostering alliances. But it must tread carefully. Misusing tools like the International Emergency Economic Powers Act (IEEPA) to impose tariffs on allies could erode credibility and weaken economic leverage. The challenge is clear: secure supply chains, counter coercion, and maintain global leadership without sparking a trade war that hurts more than it helps.

Thought Questions

1. How can the U.S. balance protecting national security with maintaining open trade relationships with allies?

2. Are tariffs and export controls effective tools for countering economic coercion, or do they create more problems than they solve?

3. What steps can businesses take to mitigate supply chain risks in an era of escalating trade tensions?

Sources: Center for Strategic and International Studies, Schiller International University, Morgan Lewis, Ashurst, White House, Atlantic Council, CEPR, Forbes, Brookings, Gibson Dunn, Pillsbury Law, Council on Foreign Relations, McKinsey, J.P. Morgan, O’Melveny