Critical minerals, once the domain of white-coated science nerds, have recently burst into our daily news headlines courtesy of Anthony Albanese’s visit with Donald Trump earlier this week, where a framework was signed to support increased investment in Australian critical minerals projects.

Much like the fictional unobtanium in Avatar, critical minerals, as the name suggests, are of huge economic and strategic importance. So, ensuring the supply chains needed to produce mobile phones, renewable energy technology, electricity grids, defence equipment and AI is considered a national security priority by many nations.

However, the terms “national interest” and “national security” are increasingly being used to muddy the waters around how governments spend your hard-earned tax dollars.

China mines and refines most of the world’s critical minerals and it has deliberately suppressed prices through market manipulation to prevent other potential suppliers, such as Australia, from joining the party. This is hardly a new phenomenon. What’s changed is Trump’s tariffs, with China now threatening to limit its exports.

For many advanced economies, this situation is clearly unsustainable from both a broad economic and strategic defence perspective. Cue the US-Australia agreement, said to be worth US$8.5bn (A$13bn) in new investment. But while Australian producers may be rubbing their hands at the prospect of government largesse, Australia’s taxpayers should be wary.

If economics has taught us anything, it is that free trade and more connected economies can make nations better off. Indeed, a prolonged period of globalisation brought economic benefits to “hundreds of millions”. But the 2008 Global Financial Crisis appears to have marked a turning point towards greater protectionism, a trend that is now accelerating around the world.

Not all forms of protection are as blatant as Trump’s tariffs. So-called “industry policy”, where governments heavily subsidise industries or firms, can turn out to be an economic wolf in sheep’s clothing. For example, in response to the pandemic, the US government provided over US$1bn (A$1.5bn) in subsidies to build capacity in domestic supply of personal protective equipment (PPE). In Australia, millions of dollars were spent by state and federal governments to subsidise vaccine manufacturing facilities. This was not because we (or the US) could do these things cheaper or better than China, but just that we no longer wanted to rely on other countries if and when another pandemic hits. The logic of this seems reasonable. But it doesn’t always.

In its first term, the Albanese government announced its Solar Sunshot program to subsidise domestic manufacturing of solar panels – at a cost of A$1bn. It gave Gina Rinehart A$840m in taxpayer money to develop a critical mineral mine and refinery in the Northern Territory, and there are many more putting out their hands and receiving government support even before this latest deal with the US. We have no indication of what the full costs to Australians will be, or if there are any genuine economic benefits.

Australia spent decades dismantling government supports that had meant higher prices on a wide range of consumer products, from cars to shirts. Now governments appear to be leaning increasingly on so-called “industry policy” that results in taxpayer money being spent on bad ideas. And that means fewer dollars to spend where they are genuinely needed.

Providing subsidies to industries in the hope they will be sustainable in the future is what economists refer to, with a good dose of irony, as “picking winners”. Too often, they turn out to be losers. Holden received more than $2bn from state and federal governments over 12 years, before we finally twigged that the price was too high. And don’t get me started on the billions in subsidies to the fossil fuel sector that are literally costing people’s lives.

Clearly, governments should act when there is a market failure. But they need to be restrained from propping up industries for the wrong reasons. Australia’s economic history has far too many examples of this.

There is also no question that economic policy decisions need to take into account “national interest”. But that concept is often poorly defined. And nowhere, in the case of the billions headed to critical minerals projects, has a cost-benefit analysis been provided for public scrutiny and to justify the price tag.

Even in less fractious times, it’s smart policy to diversify our supply chains, especially when it comes to something as key as critical minerals. And it will be good for Australia’s economy and workers if we can efficiently mine and process more of what the world so desperately needs. But we are being asked to have blind faith that this latest deal is in fact a good one for Australians, being done for the right economic reasons, rather than being another Sunshot or, even worse, an expensive peace offering to mollify a capricious leader who is at least partially responsible for problem the deal is trying to solve.

To borrow a well-worn adage, let’s make haste slowly down this path.

• Nicki Hutley is a consulting economist