Chaos at the London Metals Exchange has thrust a low-profile commodity into the limelight. For the first time on record, nickel spiked to more than $100,000 per metric ton on March 8, prompting the LME to halt nickel trading for a week.

Until recently, Russian nickel constituted about one-tenth of global supply. But Indonesia boasts the world’s largest nickel reserves and is already the largest producer. Now that Russian nickel faces sanctions, Indonesia could be in for a windfall as buyers compete for a scarcer resource. Unfortunately for Indonesians, their government has banned nickel exports.

Nickel is a key input for stainless steel and for fossil energy alternatives like lithium-ion batteries. Even before Russian President Vladimir Putin’s invasion threw the market off-balance, demand for nickel had climbed sharply. According to Nornickel’s most recent annual report, global nickel consumption rose from just below 1.3 million metric tons in 2009 to more than 2.4 million metric tons in 2020.

Chaos at the London Metals Exchange has thrust a low-profile commodity into the limelight. For the first time on record, nickel spiked to more than $100,000 per metric ton on March 8, prompting the LME to halt nickel trading for a week.

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Until recently, Russian nickel constituted about one-tenth of global supply. But Indonesia boasts the world’s largest nickel reserves and is already the largest producer. Now that Russian nickel faces sanctions, Indonesia could be in for a windfall as buyers compete for a scarcer resource. Unfortunately for Indonesians, their government has banned nickel exports.

Nickel is a key input for stainless steel and for fossil energy alternatives like lithium-ion batteries. Even before Russian President Vladimir Putin’s invasion threw the market off-balance, demand for nickel had climbed sharply. According to Nornickel’s most recent annual report, global nickel consumption rose from just below 1.3 million metric tons in 2009 to more than 2.4 million metric tons in 2020.

Citing $30 billion in nickel-processing investments and commitments from Chinese companies, Ms. Huber says the export ban puts Indonesia “on track” to develop an integrated electric vehicle battery supply chain. Indeed, buoyed by the perceived success of its nickel policy, Indonesia now plans to ban the export of gold, copper and bauxite.

But the current nickel upheaval shows a flaw in this strategy. Indonesia’s nickel economy, now linked to a handful of Chinese companies, is walled off from potential customers who would, if not for the ban, be bidding against one another for Indonesian nickel.

In essence, the government has made Indonesian nickel off-limits to the highest bidder, thereby limiting the resource’s potential to enrich Indonesians.

Only a small subset of all global nickel buyers have been willing to invest within Indonesia. The company that has been most willing to put stakes in the ground in Indonesia has been Tsingshan Holding Group—a firm at the heart of China’s Belt and Road overtures in the region and, incidentally, the primary beneficiary of the LME’s trading pause.

The relationship with Tsingshan and other firms like it will deliver some benefits to the Indonesian economy. But with will also render Indonesia geopolitically vulnerable. Dependence on exclusive Belt and Road links, rather than access to the panoply of buyers on an open global market, will weaken Indonesia’s hand as China threatens its territorial sovereignty at sea.

Moreover, the export ban makes shipping ore abroad illegal, but it doesn’t eliminate the activity altogether. Prohibitions beget smuggling and, indeed, the Indonesian Coast Guard will increase its anti-smuggling patrols amid the price spike to catch vessels seeking the high global rate. The situation is at once a waste of law enforcement resources and a detriment to public trust.

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The theory animating Indonesia is operating according to the theory that its government can produce trade outcomes superior to those produced by free trade and competition. Proponents of this theory frequently cite the examples of South Korea and Taiwan.

But as Columbia University economics professor Arvind Panagariya notes in “Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty,” that theory is shaky at best; the miracles of prosperity achieved by South Korea and Taiwan happened despite, not because of, their industrial policies. Indeed, Mr. Panagariya argues, developing countries like Indonesia can best accelerate prosperity by embracing free and open trade.

With a population of more than 270 million and its position at the heart of the dynamic Southeast Asia region, Indonesia is poised for an economic miracle of its own—one that could surely eclipse that of South Korea. Trade encumbrances, however, narrow Indonesia’s pathways to success. By ditching the nickel export ban (and the planned export bans on other commodities), Mr. Widodo’s government would make both Indonesians and the global economy better off.