Much has been made of U.S. President Donald Trump’s rapid embrace of the tools of state capitalism. Yet while Trump has made clear his desire to emulate President Xi Jinping’s iron grip on China’s economy and citizens, Trump’s economy looks less like a centrally planned industrial strategy than a third-rate emerging market.
Whether embracing tariffs, demanding equity in private companies, conditioning market access on foreign investment and kickbacks, or attacking independent institutions such as the Federal Reserve, Trump is following a well-worn playbook. And it’s not a good one. These same measures have been deployed across Latin America, Africa, and Asia with remarkably consistent results: lower investment, less wealth, higher volatility, and higher prices.
Consider the elements of Trump’s emerging market program in turn. Most notable are tariffs. Trump has famously called tariffs “the most beautiful word in the dictionary.” For decades, he has supported using them to close the goods trade deficit, completely disregarding the services trade, in which the United States is dominant.
But tariffs are best suited to protecting domestic industries in emerging markets that cannot compete globally. Two of the most prolific tariff practitioners, India and Brazil, have also been two of the United States’ biggest targets for retaliatory measures. India’s agricultural tariffs, at more than 36 percent, are among the highest in the world, while Brazil is set to increase tariffs on electric and hybrid vehicles to 35 percent in 2026 in an attempt to spur domestic production.
Trump’s infamous “Liberation Day” speech in April brought these policies to the United States at levels not seen in almost a century. Since then, soybean exports have fallen as much as 20 percent and milk prices have risen by 7 percent, while restaurants now warn that menu prices are likely to increase significantly this fall. And Trump’s 25 percent tariffs are expected to increase prices by nearly $5,000 for imported parts across the board and more than $8,000 for foreign finished vehicles, though U.S. automaker stock prices have increased by double digits since the tariffs were announced.
Then there are the demands for equity. In June, Trump demanded and received a “golden share” for the government in U.S. Steel as a condition for approving its acquisition by Nippon Steel, which was also forced to commit billions of dollars in additional capital investments in the company. Reserving a government veto for certain governance decisions is a heavy-handed—but not unprecedented—move by the Committee on Foreign Investment in the United States, the regulatory body that the approved the deal. But it was unprecedented for the United States to demand the government insert itself into the cap table of a U.S. company as part of such a review.
Yet such moves are common for two of Trump’s favorite emerging market leaders: China’s Xi and Russian President Vladimir Putin. Since 2021, China has taken “special management shares” in technology giants ByteDance, Alibaba, and Tencent, while Russia has enjoyed golden shares in its quasi-state oil and gas companies for decades.
While Trump stopped short of demanding an equity position in U.S. Steel, he crossed that line in August as he demanded and received a 10 percent stake in Intel as a condition for maintaining its CHIPS and Science Act funding. After receiving little pushback from Intel, these demands were quickly extended to other semiconductor manufacturers as well. The government has taken much larger positions in private companies before, including GM and Citigroup during the 2008 financial crisis. But these were companies on the brink of collapse that threatened to take major portions of the economy down with them.
The question now is whether this broad intervention into a stable but underperforming sector will be seen as a sign of government confidence that crowds in additional capital and enables a turnaround, or if it is seen as a scarlet letter that crowds capital out. Trump may be hoping to emulate the success of sovereign wealth funds in Gulf states such as Saudi Arabia and the United Arab Emirates, which have leveraged state support for national champions to earn tens of billions of dollars in annual profits and average double-digit returns over the past five years, respectively. Yet if taken too far, these government equity positions can lead to nationalization, which ushered in economic misery in places such as Argentina and Venezuela.
Trump is also embracing emerging markets’ preferred approach to foreign investment. Among the most noteworthy elements of Trump’s July trade deals with the European Union, Japan, and South Korea was the introduction, seemingly overnight, of mandatory foreign investment commitments as cornerstones of U.S. trade policy. Most notably, the $1.5 trillion in new foreign investments are seemingly to be allocated at the sole discretion of the president, and they follow nearly $3 trillion in foreign investment pledges from Saudi Arabia, the United Arab Emirates, and Qatar earlier this year to secure access to certain U.S. technologies.
The United States has not typically made such demands because it has not had to: The country has been the world’s preferred destination for capital and talent for decades, and it has reaped the rewards in the form of liquid markets and low interest rates.
Yet conditioning market access on foreign investment is standard practice for emerging markets that cannot attract and retain capital on their own merits. Nigeria only allowed the privatization of its electricity distribution assets after securing billions of dollars in foreign-financed network upgrades, while Indonesia has generated more than $30 billion in foreign investment into nickel processing facilities since tying nickel ore exports to capital inflows in 2020.
Some of the most notorious emerging market overreaches into private businesses have involved conditioning export licenses on kickbacks to government coffers. Former Argentinian President Cristina Fernández de Kirchner caused national riots when she tried to increase the infamous retenciones (export duties) on soybean exports in 2008. The Nigerian government continues to charge up to a 10 percent royalty on oil production.
Despite export taxes being plainly prohibited by the Constitution, in July, Trump granted Nvidia and AMD approval to export advanced chips to China in contravention of national security controls—in exchange for giving the government a 15 percent cut. It is unclear whether there has been any change to the national security findings underpinning the Commerce Department’s initial decision in April to deny export licenses for these chips, and it is extremely difficult to make the case that those national security considerations can somehow be ameliorated by cash.
Instead, Trump’s decision appears primarily motivated by his personal relationship with Nvidia CEO Jensen Huang and essentially creates a pay-to-play framework for national security issues. This Faustian bargain is unlikely to work out well for Nvidia, AMD, or their U.S. government patron. The framework puts export and other security controls on the table after years of successive U.S. administrations refusing to negotiate matters of national security; meanwhile, Beijing has already discouraged Chinese firms from buying these, which it perceives to be inferior.
Finally, Trump’s latest emerging market ploy is a relentless attack on the independent Federal Reserve. Trump has been pressing the central bank for months to lower interest rates to juice the domestic economy in advance of next year’s midterm elections. Faced with the Fed’s continued commitment to steady interest rate policy—due, in part, to Trump’s own disruptive policies—the president has resorted to levying trumped-up charges of mismanaged building renovations and personal mortgage fraud to remake the Fed with his own appointees. A nearly identical drama played out in Turkey in the late 2010s, leading to inflation of more than 80 percent and an economic crisis.
All of this is occurring as Trump is continuing a bipartisan practice of exploding the federal deficit, which now exceeds $37 trillion. It is no wonder that in May the United States was downgraded to the same credit rating as Finland and Austria.
Trump’s embrace of state capitalism doesn’t make America great. Instead, it undermines U.S. exceptionalism by showing the world that the United States’ faith in markets has deteriorated. It also abandons the country’s long-standing defense of international market norms and regulatory efforts aimed at protecting openness, encouraging competition, and creating a level playing field.
These moves risk undermining one of the United States’ key and enduring competitive advantages as the top destination for global capital and talent. This isn’t just a reputational issue. U.S. firms and families have been spoiled for decades as markets have priced the friction of doing business in the United States at essentially zero. If this starts to change, that will mean higher prices, a lower quality of goods, and lower living standards.
In other words, if the United States insists on acting like an emerging market, then trade partners may start treating it like one.
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