This is the first story in Business Insider’s new series “The Future of Capitalism.” The series looks at ways Americans’ confidence in capitalism has been eroding, and what related changes in our economy mean for your work and wealth.
To believe in American capitalism has long meant believing in a mostly laissez-faire approach from the government — it sets the rules of the game, but it doesn’t have a piece on the board. Markets pick winners and losers, not Washington. The strong thrive, the weak fail. That consensus has been eroding for years, and finally, the dam has broken: The US government has become a shareholder in nearly a dozen companies over the past several months, and the list is growing. It’s moved the economy into a much more interventionist — and unfamiliar — territory. The machine is still turning, but more hands are tinkering with the gears, including, most importantly, the president’s.
The federal government has been on an equity stake shopping spree during the first year of Trump’s second term. The US took a nearly 10% stake in Intel for $8.9 billion in August, a move aimed at bolstering the country’s semiconductor industry. It has invested in several critical minerals firms, including MP Materials, Lithium Americas, and Trilogy Metals, as well as in Westinghouse, a nuclear energy company. In June, the administration acquired a “golden share” in US Steel in exchange for approving Japanese company Nippon Steel’s acquisition of the company — it gives the government veto-like power over decisions such as shifting jobs outside the US and shuttering plants. (And as for recent developments in Venezuela, the president clearly is waving a heavy hand toward the US oil industry and potential investment there. How that situation plays remains to be seen.)
These types of moves are not abnormal outside the United States. China’s version of capitalism is hyper-state-led. Many governments, including those of France, Italy, and the United Kingdom, make direct investments in some domestic firms. The US has gotten extra involved in private industry in the past, but it’s generally been in times of distress, such as during the 2008 crisis, when it took stakes in certain financial institutions and automakers in order to prevent a broader economic meltdown.
This time, it’s different: The government is meddling when there’s no apparent urgent need, and it’s picking companies in what some observers say is a scattershot manner. The sectors make sense, but the criteria for selecting companies are rather unclear, as is the role the government will play in its investments.
“With industrial policy, the devil’s in the details of so much, and this is where the details are really obscured, and where they are defined, they’re kind of ad hoc,” says Nathan Lane, an assistant professor of economic development at the London School of Economics and Political Science.
A novel vision of American state capitalism is emerging right before our eyes. It’s a world where the White House puts its thumb on the scale, whether in injecting funds into a firm, weighing in on mergers, or implementing legally questionable tariffs at the drop of a hat. Many critics have expressed concerns about the risks arising from the Trump administration’s actions — the potential for politically biased decision-making, the appearance of crony capitalism, and possible market distortions. In the grand scheme of things, these maneuvers may be financially minor, but they’re structurally major developments. Regardless of the drawbacks, it’s indicative of where we’re headed. There may be no going back.
“The use of these tools generally only goes in one direction, and so the Trump administration, for better or worse, has introduced a new group of tools into the economic statecraft toolkit,” says Aaron Bartnick, a former White House economic security official under the Biden administration and a current fellow at Columbia University. “Whatever administration comes next, whether Republican or Democrat, will find it very tempting to continue to use them.”
This hasn’t all happened out of nowhere — the US has, for a decade, been increasingly comfortable with industrial policy, meaning the government taking a more active role in steering the economy. Trump 1.0 implemented several protectionist policies, including imposing tariffs on steel and aluminum imports, engaging in a trade war with China, and renegotiating the NAFTA trade agreement with Canada and Mexico. Rather than rolling everything back, Biden left in place many of Trump’s tariffs, and his administration pushed in a state-nudged economic direction with the CHIPS Act, which was meant to support the US semiconductor industry, and the Inflation Reduction Act, which, among other things, put tax credits and funds toward sectors such as electric vehicles and solar energy. And even prior to Trump and Biden, the government hasn’t completely steered clear of steering the economy when needed. See: The New Deal and the aforementioned response to the financial crisis.
The Trump administration, for better or worse, has introduced a new group of tools into the economic statecraft toolkit.
Still, overall, the US has largely taken a hands-off approach to the economy over the last 40 years and been critical of countries that don’t.
“The United States has spent decades tsk-tsking the rest of the world about state-owned enterprises and industrial policy and state capitalism,” says Scott Lincicome, vice president of general economics and trade at the Cato Institute, a libertarian think tank. On the Trump administration’s current about-face, “the hypocrisy is pretty big,” he says.
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The latest turn is a significant step further. Instead of deploying a more typical playbook — grants, loans, tariffs, etc. — that can be seen as at least somewhat neutral in its application, the White House is now picking and choosing companies to get involved in. In broad strokes, one can see what they’re getting at here. The companies on Trump’s investment list are in important sectors where the US lags behind, and they fit into the president’s overall theory of the case on the economy: it’s better to have and make stuff here. Take Intel: The Trump administration wants to make sure the US is not reliant on semiconductor companies such as TSMC, which is based in Taiwan, since the island is vulnerable to China. It’s a similar story with critical minerals companies, which mine, process, or refine materials crucial for a range of products, from smartphones to defense technology. Even some progressives see these as worthwhile endeavors. Sen. Bernie Sanders is into the Intel deal, telling Reuters in August that “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”
What some critics find head-scratching is why specific companies are being chosen. Why Intel in particular, and even more peculiarly, why a startup helmed by Intel’s former CEO? On a macro level, the end goal may be the same as more typical industrial policy — supporting certain sectors — but it’s being performed on a micro level. Trump has also been critical of policies with the same end in mind. Back in March, he told Congress to “get rid of” the CHIPS Act.
“It is fair to say that Intel has been underperforming, but I don’t know of anyone who feels that if Intel continued to underperform, there was a risk of taking the entire technology sector down,” Bartnick says. “We haven’t seen a rationale for how these particular companies were selected, how these particular industries were selected, how the valuations were reached.”
The Trump administration may have determined that the US can’t win its existential battle with China and protect its economic priorities with the regular tools in the toolbox. William Henagan, a research fellow at the Council on Foreign Relations, says those instruments have proven effective in the past because of the size of America’s economy and the critical role the US dollar plays in global finance. The fact that the White House thinks throwing around our national weight is not enough to achieve their desired outcomes is an eyebrow-raising sign.
“We’ve basically been able to use restrictive enforcement tools to achieve international policy outcomes that we were interested in,” Henagan says. “Those are no longer sufficient.”
A White House official tells me there’s “very much” a logic to what the administration is doing in taking equity stakes in strategic industries and sectors. “The point with the equity stakes is that it’s a tool that other countries have used with various degrees of success, but we’re not indiscriminately trying to take equity stakes in everyone, in anything. We see it as a very powerful tool that we’re using very judiciously in very specific sectors for very specific reasons,” they say. Losing Intel, for example, would be an “asymmetric blow” to America’s national and economic security.
The equity stakes are a “rounding error” compared with the trillions of dollars of GDP being affected by “what are very unequivocally free-market or pro-capitalist policymaking” activities, the official says, pointing to tax cuts and deregulation, among other moves. But they are an acknowledgment that the White House feels the free market has fallen short in shoring up these critical sectors.
While the motivation for taking stakes in companies may be clear-ish, the execution is not, nor are the potential consequences.
“We know very little about the other rights that are associated with these deals,” Bartnick says.
It’s hard to predict exactly how the government will wield its equity-derived power. How will these stakes dilute the rights of existing shareholders? And what happens if the US government’s interests don’t align with those of other stockholders? Will the company feel compelled to follow through on what the government says, regardless? How exactly will the terms of these deals work? And even if the government doesn’t use the hard power of its vote shares, it can use soft power to keep companies it’s invested in from stepping out of line.
The federal government’s Intel investment will be passive, meaning it gets no board representation or other governance rights, and it’s agreed to vote with the company’s board of directors — with limited exceptions. As part of the MP Materials agreement, the company isn’t allowed to nominate any board members who are not US citizens without the Department of Defense’s consent. However, the government will generally vote with the company’s board, with exceptions.
The way American capitalism is generally supposed to work is that money flows to companies that are doing the best job of utilizing it. The whole idea is that market capital allocation is designed to separate the wheat from the chaff. These stakes may distort that — the government is choosing which specific firms it wants to come out ahead.
It’s better if tech CEOs spend less time in DC and more time coming up with new products.
What’s more, if the federal government is going about throwing around money, rather than businesses focusing on making the best products and services possible, they may turn their attention to currying favor with the president. Whether or not this is crony capitalism or merely appears to be doesn’t really matter. If executives make the calculation that it’s much better to be on Trump’s good side than his bad side, they may fall in line preemptively. The competition isn’t for customers, market share, or innovation — it’s for the president’s affection.
The Trump administration doesn’t want to be in the business of running private companies from the Oval Office, the White House official tells me, but the point is for the government to have some sway. “Obviously, the intent wasn’t for us to take an equity stake in Intel and then they just close down their Ohio foundry and ship it off to Taiwan,” the official says. The hope is there’s an “overlap” between what’s best for companies and best for American economic national security.
Scott Kennedy, a senior advisor in Chinese business and economics at the Center for Strategic and International Studies, tells me that in an economy as vast and varied as America’s, Washington’s power is relatively limited, and this activity could be just a “minor nuisance” to industry. “On the other hand, if there are more cases, then it will begin to affect the decision-making of businesses and will increasingly orient them to think about how they should do business in a way that benefits the current administration as opposed to what benefits their company or the US national interest,” he says. “And I think that that could have a distorting effect eventually.”
“It’s better if tech CEOs spend less time in DC and more time coming up with new products,” says Owen Zidar, a professor of economics and public affairs at Princeton University.
Nearly every analyst, economist, and academic I spoke to for this story agreed that Trump’s version of American state capitalism is more a reflection of where the US is going than where it has been. It’s not the same as what China’s doing, and it’s not socialism, but it’s an unconventional step further down the road that the US has been on for a while.
On issues such as antitrust enforcement, industrial policy, and tariffs, factions within both the Republican and Democratic parties are leaning more towards interventionism. Trump is being more obvious with his actions and intentions — there’s a reason Tim Cook is showing up in the Oval Office with a gold plaque. This is a situation where there’s likely no backtracking. Other countries are reacting to America’s inward turn as well — it’s why Canada is shoring up its domestic economy, and Europe is taking a corporatist turn.
“It changes the political equilibrium in a way that other countries pursue similar policies. And we get away from the brand of capitalism that we were doing before,” Lane says.
I wish there was a sort of unified field theory for this in the Trump administration, but I don’t think so.
It’s not a bad thing to look beyond the previous consensus. Capitalism is increasingly unpopular in America, especially among young people, for a reason. For many Americans, the system isn’t working. Instead, it’s breeding inequality, shipping jobs overseas, and making the overall economy more precarious. During the pandemic, the public got a front-row seat to the fragility of our supply chains and the risks associated with the just-in-time, globally distributed setup. Political leaders and policymakers aren’t wrong to wonder if the state shouldn’t take a heavier hand in shoring up important industries, supporting vital companies, and making investments where the private market might blanch at the risks.
The White House has indicated that more equity investments are likely on the horizon, but the criteria for who it will pick are a black box. “We should entirely leave it up to the market to do whatever it wants” is not a great approach to the economy. Neither is, “Who gets a leg up depends on how the president’s feeling today.” It’s odd for Trump to seize the means of production a little bit.
“We’ve had this sort of ideological view that’s now breaking down a bit because we’ve realized that what we’ve been doing isn’t good enough, isn’t adequate enough,” says Robert Atkinson, the founder and president of the Information Technology and Innovation Foundation, a tech and science policy think tank. “I wish there was a sort of unified field theory for this in the Trump administration, but I don’t think so.”
While the motives are understandable, the mechanics are anything but. It’s unclear how the US will exit these investments, or, once it does, how much money it will actually make. However, in the context of the enormous federal budget, the return will be minimal. It pushes the global economy into new territory, and it’s hard to know whether it’s one the US will always like.
“We have spent decades, under both Democrats and even more so under Republicans, criticizing certainly China and Russia, but also Italy, Germany, and the UK on their use of these tools,” Bartnick says. “And if the US starts to go down that path as well, it will give not just our adversaries, but also our allies, even greater license to do the same.”
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.
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