Fresh off clinching the Republican nomination for president in May 2012, Mitt Romney paid a surprise visit to the shuttered California headquarters of Solyndra, a solar panel manufacturer whose bankruptcy a year earlier had left taxpayers on the hook for hundreds of millions of dollars of federally guaranteed loans.
In Mr. Romney’s telling, the company’s failure was a textbook example of the perils of government meddling in the private sector. The free market is meant to reward companies for having the best ideas, the best technology, the best people, Mr. Romney said. Under President Barack Obama, however, companies were too often rewarded for knowing the right people.
“Free enterprise, to the president, means taking money from the taxpayer and giving it freely to his friends,” Mr. Romney said, before adding, “That is not the nature of how America works.”
Many economists at the time said Mr. Romney’s attack was unfair or exaggerated. Today, they use a different word to describe it: quaint.
Since returning to the White House last year, President Trump has gotten the government involved in the private sector in ways that Mr. Obama and other past presidents, of either major party, would never have considered.
The Trump administration has taken ownership stakes in corporations, intervened in business deals and negotiated a cut of the revenue of American companies’ overseas sales. Mr. Trump has unilaterally deployed tariffs and other policy levers to help industries he favors, like artificial intelligence and cryptocurrencies, and to punish those he dislikes, like wind power. He has wielded the powers of the federal bureaucracy to pressure executives, sometimes in ways that blur the lines between his policy objectives and his personal business interests.
Mr. Trump has often failed to offer a clear legal justification for his actions, and some of them may have been illegal. On Friday, the Supreme Court struck down many of Mr. Trump’s most sweeping tariffs, finding he had exceeded presidential authority when he imposed them. Mr. Trump quickly announced that he would impose new across-the-board tariffs using a different law.
The sheer extent of his interventions — and the fact that they have often come with little explanation and few details — has left economists and other theorists struggling to describe them. Are they examples of “state capitalism,” “crony capitalism” or, perhaps, not capitalism at all? Senator Rand Paul of Kentucky, a Republican, last year called Mr. Trump’s move to take a stake in Intel, the chipmaker, “a step toward socialism.” Some political scientists have applied the term “neoroyalism,” likening Mr. Trump to European kings of the 16th century.
“When you start picking winners and losers like this, it’s like, where does it end?” said Vance Ginn, a conservative economist who served in the first Trump administration but has been critical of the second. “We’re far away from capitalism in my view.”
The drift from free-market policies didn’t begin with Mr. Trump. He represents, at least to a degree, the culmination of two decades of popular dissatisfaction with the economy that people like Mr. Romney — who built a fortune in private equity before he entered politics — helped to build.
So far, however, the public seems just as unhappy with Mr. Trump’s economy, which has not delivered the manufacturing jobs and lower prices that he promised on the campaign trail. It remains uncertain whether the Republican Party will continue down the path charted by Mr. Trump after he leaves office, or turn back toward the version of the party he left behind.
Democrats, in their own way, are engaged in a similar debate. President Joseph R. Biden Jr., too, embraced tools like tariffs and industrial subsidies, and while some moderate Democrats were unhappy with that shift, many of the party’s rising stars come from a progressive wing of the party that has long called for more government involvement in the economy.
To critics of the old system, the shift in directions in both parties was long overdue — and unlikely to reverse quickly.
“What you see is a very important break with the past, a very effective break with the past,” said Oren Cass, who leads American Compass, a populist think tank. “It’s very hard at this point to envision a political leader of either party in 2028 running on a platform of, ‘Let’s get back to 2013-style globalization.’”
Still, Mr. Cass acknowledged that Mr. Trump has so far been more successful at tearing down the old system than building a new one.
“We’re in this inchoate period,” said Jason Furman, a Harvard economist who was an adviser to Mr. Obama. “I don’t think you can say something’s dead until you have something to replace it.”
A New Direction
This much is clear: The economic policies of Mr. Trump’s second term represent a fundamental rupture with the Republican orthodoxy of an earlier era.
“We’re very far from the Republicans of George Bush,” said N. Gregory Mankiw, a Harvard economist who was a top adviser to Mr. Bush in the early 2000s.
Indeed, Mr. Trump’s recent policies represent a break even from his own first term. Back then, Mr. Trump departed from the standard Republican line on trade, but otherwise hewed relatively closely to his party’s traditional free-market ethos, at least in his actions if not always in his rhetoric.
He shepherded through tax cuts for corporations and wealthy people, eliminated regulations and left in place many of the programs that allowed businesses to hire foreign-born workers.
Mr. Trump has cut taxes and reduced regulations in his second term, too. But he has been much more aggressive in his crackdown on immigration, and has shown far more willingness to meddle in the operations of specific industries and even specific companies.
In August, for example, Mr. Trump publicly demanded the resignation of Lip-Bu Tan, the chief executive of the chipmaker Intel. He reversed course days later after Mr. Tan visited the Oval Office — and then, days after that, announced that the federal government would be taking a 10 percent stake in Intel, worth $8.9 billion, one of the largest government interventions in a private business since the 2008 financial crisis.
The episode fit an emerging pattern in the second Trump administration. The federal government in recent months has taken stakes in an array of private companies, many of them connected to the technology or defense industries.
Mr. Trump also rolled back longstanding restrictions on the sale of advanced semiconductor chips to China, but only after Nvidia, the chipmaker, agreed to give the government a cut of the revenue from the sales. He repeatedly — and unilaterally — waived deadlines for the Chinese technology company ByteDance to sell TikTok, the social media app, then brokered a deal to spin it off to a group of investors, several of whom have ties to Mr. Trump.
After ousting Venezuela’s president, Nicolás Maduro, in January, Mr. Trump moved to take direct control of the country’s oil revenues, and hinted he might block Exxon Mobil from the country after its chief executive was insufficiently enthusiastic about investing there.
Such moves have drawn broad criticism from economists, including some of Mr. Trump’s supporters. Stephen Moore, a conservative economist who is a frequent defender of the president’s policies, called taking ownership stakes in private companies “a dangerous idea.”
“It’s certainly moving in the direction of a kind of industrial policy, where the government is picking winners and losers, and that’s very contrary to Republican doctrine since the beginning of the Reagan era,” Mr. Moore said in an interview. He added, however, that the strong growth in Mr. Trump’s first year suggests that the administration’s policies have, on net, been good for the economy.
While many of Mr. Trump’s interventions in the private sector have been connected to foreign policy, he has recently begun to extend the approach to domestic affairs. He has threatened to cap interest rates on credit cards, limit investor ownership of single family homes and slow — or even revoke — federal approvals for wind and solar projects.
Under previous administrations, such actions almost certainly would have drawn howls of protest from the business community. But this time, businesses have been largely silent. That may reflect the business community’s support for the administration’s tax and regulatory policies. But their reluctance to speak out also suggests a fear of retribution, said Ben Harris, a Brookings Institution economist who worked in the White House under Mr. Biden.
“They’re terrified of being punished by the administration,” Mr. Harris said. “Which just sort of plays into this whole notion that markets are being shaped by forces other than capitalism.”
Death of the Neoliberal Consensus
Mr. Trump’s break with the free market didn’t come out of nowhere. It reflects, at least to some extent, a longer-run shift from the free-market principles that were dominant in the 1990s and early 2000s.
The “neoliberal consensus,” as it has come to be known, was never a true consensus. Labor-aligned Democrats were worried that globalization would hurt workers; liberals were skeptical of efforts to cut taxes and weaken the safety net; right-wing populists like Pat Buchanan broke from the Republican Party on issues of immigration and trade.
But from Ronald Reagan through George W. Bush, presidents of both parties embraced the idea that the government’s role should be limited and that relatively unfettered markets were the best way to allocate resources in the economy.
The 2008 financial crisis damaged that bipartisan worldview, as corporate giants that had profited in the era of deregulation turned to the government for bailouts when their bets soured. So, too, did evidence — belatedly acknowledged by mainstream economists — that globalization had done lasting damage to U.S. factory workers and the communities where they lived.
“The system hasn’t worked for all,” said Raghuram Rajan, a University of Chicago professor and former chief economist at the International Monetary Fund. “You can see it 100 miles from Chicago in any direction. You see the consequences on towns that have been left behind by the modern economy.”
Mr. Rajan, who in a 2005 speech identified many of the risks that would ultimately lead to the 2008 financial crisis, said the costs borne by workers and communities are an argument for fixing globalization, not pulling back from it. But many political leaders took a different lesson.
In 2016, Mr. Trump barnstormed his way to the Republican nomination with promises of stricter immigration enforcement and a return of factory jobs. Another trade-skeptical populist, Senator Bernie Sanders of Vermont, came close to winning the Democratic nomination, losing to Hillary Clinton only after she abandoned her support for the free trade agreement she helped negotiate as secretary of state.
Mr. Biden tried to reverse much of what Mr. Trump had done in his first term on foreign policy, climate change and many other issues. But on economic policy, Mr. Biden in some ways moved even further from the free-market consensus. He kept in place many of Mr. Trump’s tariffs on China, took an aggressive stance on antitrust enforcement and provided government support for manufacturers of semiconductors, solar panels and other industries his administration deemed critical to the national interest.
In his final weeks in office, Mr. Biden moved to block the acquisition of U.S. Steel by Nippon Steel, a Japanese company — a decision that even many of his advisers saw as an unwise intervention in a business transaction. Mr. Trump overruled that decision, allowing the merger — but only after Nippon agreed to give him a “golden share,” providing the president with extraordinary power over the company’s operations. James Pethokoukis, an economist at the American Enterprise Institute, called the move “a full step toward nationalization.”
A Valuable Tool?
Free-market conservatives like Mr. Pethokoukis, and many economists from the center and center-left, argue that Mr. Trump’s efforts to intervene in the private sector will ultimately leave the economy less productive and Americans worse off.
Their critique is similar to the one Mr. Romney made in 2012. If companies come to rely on the federal government as an investor, customer, regulator and even owner, they will stop focusing on how to make their products efficiently and serve their customers well. Instead, they will focus on how to preserve their government contracts and win favor with the politicians that control them — what economists call rent-seeking.
“When companies are more dependent on the government, on taxpayer money fueling them, they’re less interested in the profit and loss motive,” said Mr. Ginn, the former Trump administration economist. “That doesn’t work well throughout history.”
For progressives, the picture is less black and white. They have warned for years about the dangers of unfettered capitalism, and have argued that the government should take a more muscular role in many industries. Many progressives applauded Mr. Biden’s embrace of industrial policy and pushed him to go further, in some cases criticizing him for refusing to explore some of the policy levers, including taking part ownership of companies, that Mr. Trump is using.
“I personally don’t have some ideological objection to the government having an equity stake or some arrangement where they get some of the upside of providing support to some corporation,” said Bharat Ramamurti, who was an economic adviser in the Biden administration and before that worked for Senator Elizabeth Warren of Massachusetts.
Mr. Ramamurti said he didn’t think the government should be dictating the decisions of individual companies. And he said the risks of corruption and rent-seeking that more conservative economists highlight are real. But he said leaders of both parties have been too dismissive of policies that could help workers simply because they broke with free-market orthodoxy.
“I think that there is a very widespread view that there has been a disjunction between how well the corporate sector and executives have been doing and how the working class has been doing,” he said. Politicians are right to ask, he said, “What are the policy tools that we have to try to bring those two things into greater harmony?”
‘He Is Not Building a Strategy.’
But even economists who are sympathetic to some of Mr. Trump’s policies in theory tend to object to the way he is carrying them out. They argue that many of his actions appear to run counter to their stated aims, or have no clear justification at all.
Mr. Trump argues tariffs will help restore American manufacturing, for example, but has imposed them in too haphazard a manner for businesses to be comfortable making the kind of long-term investments that would be necessary to achieve that goal. He has warned about the rise of China, but has imposed tariffs on allies in ways that push them further into China’s orbit. He has demanded that the Federal Reserve lower interest rates, but has done so in a way that could backfire by pushing up the long-term borrowing costs that matter most to the economy.
“He is not building a strategy,” said Mariana Mazzucato, an Italian economist who is a leading theorist of the state’s role in the economy. “He is deploying instruments transactionally, without clear direction-setting and without the institutional capacity needed to govern them toward public purpose.”
Ultimately, many economists say, it is a mistake to try to understand Mr. Trump’s actions through the lens of state capitalism, industrial policy or other clearly defined economic philosophy. Mr. Trump’s approach to policymaking is transactional and personal, not ideological.
“It’s centralizing power in the Oval Office,” Mr. Mankiw said. “That’s the common thread.”
That could also be among Mr. Trump’s most lasting economic legacies.
On issues like trade, immigration and industrial policy, the political pendulum will probably swing back in the other direction eventually — sooner if the economy takes a turn for the worse, later if Mr. Trump’s policies seem to deliver results. Neoliberalism may be out of fashion among elected leaders in both parties, though it retains a deep well of support inside universities, corporate boardrooms and Washington think tanks.
But it may prove harder to persuade a future president to cede the power over the private sector that Mr. Trump has worked to build. Now that the government holds a stake in Intel and other companies, future administrations will have little incentive to cut them loose, said Scott Lincicome, an economist at the Cato Institute, a libertarian think tank.
“I think it’s going to be extremely seductive for whoever is the next president to continue it, if not ramp it up,” he said.
Mr. Lincicome was a frequent critic of Mr. Biden’s policies on regulation, taxation and other areas. But he said Mr. Trump’s approach will ultimately be much more damaging because it is unpredictable and creates uncertainty for the businesses and people whose decisions drive economic growth.
“I think that the transactional approach is much more dangerous than just departing from the free-market economics that I might like,” he said. “Predictability, stability, consistency, those are the things, much more than tax rates, that are important for long-term economic activity.”
Tony Romm contributed reporting.
Ben Casselman is the chief economics correspondent for The Times. He has reported on the economy for nearly 20 years.
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