One of the best short essays ever written is "I, Pencil" by Leonard Read. It perfectly describes how the real economy works: thousands of people working across numerous industries and countries to create an inexpensive pencil. When the world is at peace, the metaphor works. When it's not at peace, the analogy falls apart.

We're in the second part of that sentence: the world is not at peace and not working as it should. This isn't an opinion; it's a fact. Countries like China manipulate global supply chains, countries like the United States respond with economic pressure, and everyone else falls in between.

The story of a pencil comes from sourcing each aspect of it: the wood, rubber, metal, and graphite. It all comes from somewhere; entire industries surround those commodities and manufactured components. If I go on Staples' website and check their per-unit cost, a pencil only costs around 15 cents. It's incredible that multi-billion dollar industries exist that create something so cheap.

You, as the end customer, don't know all of that. Nor do you know how to go out and source each component of an individual pencil. It's like this for all the things we buy. Sure, you may know how to create some items, but not everything in your house. You pay to outsource those things because it frees you to engage in other pursuits.

This is the ideal economy: one where needs are met by market forces seeking to get something done as cheaply and efficiently as possible. In a free trade system, everyone moves in these directions, and the "invisible hand" pushes things forward.

The problem is that we don't live in an ideal world or a truly free trade system.

When we examine things like politics, there's an understanding that we have checks and balances because we live in a fallen world. James Madison wrote in Federalist 51, "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."

This is true in free trade, too. If men were angels, we'd be able to have a truly free trade system where everyone works together across the board. But neither men nor national governments are angels, and we know that they actively work to impact the economy to their own benefit and the detriment of others.

The Trump administration has launched a trade war with China. One response China has launched in return is restricting rare earth mineral exports to the United States. This move directly threatens the United States' ability to build consumer technology and military hardware.

This move wasn't made in isolation. China purposely picked an industry they set out to dominate and drove everyone out of years ago. China extracts roughly 60% of all rare earth minerals on the planet and processes almost 90% of all rare earth minerals. Even if you don't need China to find the rare earth minerals, you need them to process them.

China's dominance here isn't a story of market efficiencies in things like "I, Pencil." It's one of a communist regime attempting to get a stronghold on critical industries and kill off competitors in other countries.

Analysts note, "To maintain its leading position, China often operates at a loss across the rare earths supply chain to keep prices low. For example, the cost of neodymium-praseodymium (NdPr) dropped by 20% between January and July 2024, according to the Institute for Energy Research. But, given the ability of the country's centralized system to absorb these losses, this appears to be a choice that China's leadership is willing to make to maintain the country's control over the critical elements."

Rare earth minerals aren't the only industry. Over the years and decades, China has targeted multiple industries in the United States and the world to undercut and dominate them and create leverage. 

Most Americans understand this regarding things like oil, where OPEC has held the country hostage and jacked up prices to punish other countries. The United States' achievement of energy independence weakened this power over us. OPEC focuses on one industry and wields that power towards its own end. China has done the same with everything from manufacturing to commodities. 

Part of creating a world where "I, Pencil" can exist means forcing everyone to play by the same rules. China is a centrally planned communist economy that seeks domination for political power. The United States must respond to these power grabs, or it will put us at a disadvantage when our interests don't align with China's - which has become more frequent across multiple administrations. 

Tariffs are taxes that impact trade by making things more expensive for us and them. They are a blunt and imperfect tool, but tariffs do provide the United States with counter-leverage against the Chinese. 

If Trump can use that leverage wisely to build a path forward for America, we can return to something akin to a free trade world. But if China and other nefarious nations intend to leverage their political power to attack the United States economy, we have to respond. 

And that's the untold story of "I, Pencil" and every other free trade narrative. They exist only because an overriding peace exists. For the past century, the United States Navy has patrolled the seas, forcing global trade to follow our terms. China is fighting that.

A future and prosperous United States economy will depend, once again, on the power and projection of the United States military. We are fighting China economically now - but that's to prevent a war. I hope we are successful because I'd like us to have a prosperous future.