The Chinese “did exactly what we asked them to do,” Lifton said. “They started low-cost manufacturing using raw materials they could also produce at the lowest cost.”

“The capitalists in New York were popping champagne, saying, ‘We have achieved low cost!’” Lifton continued, “And now the Chinese are saying, ‘Phase two: we’re going to be the supplier, you guys can go out of business, and the capitalists in New York are saying, ‘Oh, you evil people.’ It’s completely ridiculous.”

According to Scott, Margonelli and Appelbaum, by focusing on price alone, the U.S. allowed the market to determine the value of crucial components like rare earths.

Fortunately, a company is trying to re-open the rare-earths mine in California in the next couple of years, as market theory would predict. But in the meantime the delay will result in more harm to American manufacturing and a competitive advantage to the Chinese.

This story shows why trade policies toward China and industry in general need a serious re-examination.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.