Global trade is undergoing a transformative period shaped by geopolitical tensions, technological disruptions, and the urgent need for climate action. After decades of steady globalization, marked by trade liberalization and cross-border economic integration, recent years have seen a shift toward protectionism and strategic industrial policy.
The COVID-19 pandemic exposed the vulnerabilities of hyper-globalized supply chains, prompting countries to reassess their dependence on foreign suppliers for critical goods such as semiconductors, medical equipment, and energy resources. Simultaneously, the war in Ukraine, the U.S.-China trade rivalry, and rising concerns over climate change have led nations to embed security, sustainability, and resilience into trade and industrial policy decisions.
Governments are increasingly using trade not merely for economic growth, but also to achieve broader strategic goals—such as national security, climate mitigation, and technological leadership. This has resulted in a more fragmented and politicized global trade environment. The resurgence of industrial policy and economic nationalism is reshaping global supply chains, affecting the flow of goods, investment patterns, and the logistics networks that underpin the global economy.
The impact of trade policy and protectionism is particularly evident in critical sectors such as technology, energy, and manufacturing. Measures like subsidies for domestic production, carbon tariffs on imports, and export restrictions on strategic raw materials are altering traditional trade relations. These shifts are affecting the countries that implement them and also resonating across global markets, creating ripple effects for producers, exporters, and logistics providers globally.
Notably, there are three major policy developments that have significantly influenced supply chains, industrial policies, and international commerce: the U.S. CHIPS and Science Act, the European Union’s Carbon Border Adjustment Mechanism (CBAM), and China’s export controls on rare earth elements. t controls on rare earth elements, which highlight the use of strategic resources as a tool of foreign policy. Each of these policies reveals how modern trade strategies are becoming more protectionist and targeted, with far-reaching consequences for the structure and operation of global trade and logistics.
The U.S. CHIPS and Science Act
Enacted in August 2022, the CHIPS and Science Act aims to strengthen the United States’ semiconductor industry by providing $52.7 billion in subsidies for chip manufacturing and research. This initiative responds to the nation’s declining share in global semiconductor production, which fell from 37% in 1990 to about 10% in 2022.
By March 2024, the Act had spurred between 25 and 50 potential projects, with projected investments ranging from $160 to $200 billion and the creation of 25,000 to 45,000 new jobs. However, these projects face challenges, including bureaucratic delays in grant disbursement and a shortage of skilled workers. Approximately 40% of the new positions require two-year technician degrees, while 60% demand four-year engineering degrees or higher.
Despite these hurdles, the Act has attracted significant investments from major companies. For instance, Intel announced a $20 billion investment in Ohio, and Samsung committed $17 billion for a new facility in Texas . These developments signify a strategic shift towards reducing dependency on foreign semiconductor suppliers, particularly in light of export controls on advanced computing and semiconductors to China.
EU’s Carbon Border Adjustment Mechanism (CBAM)
The European Union’s CBAM, which entered into force on October 1, 2023, is an important component of the EU’s strategy to reduce greenhouse gas emissions. The mechanism imposes a carbon price on imports of certain goods from countries with less stringent environmental regulations, aiming to prevent “carbon leakage” and promote fair competition.
During its transitional phase (2023–2025), importers of products such as aluminum, cement, electricity, fertilizers, hydrogen, and iron and steel are required to report their emissions. Starting January 1, 2026, they must purchase CBAM certificates corresponding to the embedded emissions in their imports.
This policy has significant implications for global trade and logistics. Exporters to the EU must now account for the carbon intensity of their products, potentially leading to shifts in manufacturing practices and supply chain adjustments. Countries with carbon-intensive production processes may face competitive disadvantages, prompting a reevaluation of production methods and sourcing strategies.
China’s Export Controls on Rare Earth Elements
China’s dominance in the rare earth elements (REEs) market, accounting for over 95% of global production, has positioned it as a critical player in industries ranging from electronics to defense . In recent years, China has implemented export controls on several REEs, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.
These controls, often requiring mandatory export licenses, have interrupted supply chains. For example, U.S. defense contractors and electric vehicle manufacturers have faced challenges in securing essential materials, leading to increased prices and production delay. The restrictions have also caused concerns about national security and technological competitiveness.
In response, countries like the United States and members of the European Union are investing in alternative sources and processing capabilities. Notably, Australian company Lynas Rare Earths has become the first commercial producer of separated heavy rare earths outside China, marking a significant step towards supply chain diversification.
The U.S. CHIPS and Science Act, the EU’s CBAM, and China’s export controls on rare earth elements exemplify how trade policies and protectionist measures are reshaping global trade and logistics. These initiatives reflect broader strategic objectives, including technological self-sufficiency, environmental sustainability, and resource security. As nations navigate these complex dynamics, the interplay between policy decisions and global supply chains will continue to evolve, necessitating adaptive strategies and international cooperation.
