President Donald Trump’s blatant efforts to transform America’s long-heralded capitalist system into a state-controlled economy have business leaders alarmed. The federal government’s revenue-sharing agreements with Nvidia and AMD, as well as its equity stakes in Intel, U.S. Steel, and MP Materials, threaten the very foundations that have made the U.S. economy the best in the world—and undermine the economic philosophy of many Trump supporters.
“Government ‘help’ to business is just as disastrous as government persecution,” wrote free-market economic evangelist Ayn Rand in her book Anthem. “The only way a government can be of service to national prosperity is by keeping its hands off.”
In contrast, Mao Tse-tung, Former Chairman of the Chinese Communist Party argued that “The capitalist economy exists not chiefly to make profits for the capitalists but to meet the needs of the people and the state.” Instead, Mao suggested that leaders should “have the firm conviction that state capitalism is the only road for the transformation of capitalist industry and commerce and for the gradual completion of the transition to socialism.”
To be sure, the modern Republican party is far from communist. And most MAGA enthusiasts and GOP leaders would classify themselves as traditional free-market conservatives—rather than state-driven socialists. However, Trump is beginning to sound more like Mao than Rand.
In what is typically a quiet summer month for the business community, we have received dozens of inbound emails and calls from CEOs representing the largest U.S. corporations in complete disbelief about this shift. The messages are all similar: “What the hell is Trump doing? The departure from our nation’s values has gone too far.”
Many continue to wonder why corporate lobbying groups such as the Business Roundtable (BRT) have not spoken up more on this issue. Business leaders have correctly identified Trump’s bullying tactics for what they are and recognize that only collective action can effectively counter the president’s overreach. Strangely, though, the BRT has remained conspicuously quiet out of what a growing chorus of commentators interpret to be a fear of retribution.
Comparative cautionary tales
This chilling effect could have negative consequences for the country. Modern history has repeatedly shown that state-led capitalism is a recipe for failure.
Since 2020, China has experienced a period of slow growth and deflationary pressure, marked by a deepening real estate crisis, weakened consumer demand, and declining foreign investment. The Chinese government has built cities designed for millions of people which remained largely empty, and spent billions on infrastructure with little to no real demand. The Chinese economic stagnation has become increasingly comparable to Japan’s “Lost Decade,” which itself resulted from excessive government intervention in the banking system during the 1990s.
In 2012, Argentine President Cristina Fernández de Kirchner nationalized Spain’s Repsol oil subsidiary, YPF, under the pretext that it would enhance energy production after years of underinvestment. The expropriation entailed the government seizing a 51% equity stake in YPF. To Argentina’s credit, the move was at least approved by its Senate. Unfortunately, the state’s operation of the oil company has not exactly lived up to its promises, mired by the cost of legal battles over the government’s expropriation of Repsol’s stake, increased regulatory and political risks from state ownership, and government interference in fuel prices.
And numerous other examples exist, from the more recent Brazilian attempts at centralized economic planning to the failed French Minitel intervention in the early internet economy.
America’s free-market heritage
Historically, the U.S. has recognized the risks of government intervention in the free market economy, typically intervening only during periods of crisis.
The War Industries Board of World War I and the War Production Board of World War II led essential economic mobilization programs—prioritizing production, distributing raw materials, setting prices, converting factories for wartime use, and managing industry-labor relations—necessary during major armed conflicts. Rarely was government nationalization used as a means, and even then, it was only employed when entities were on the verge of collapse.
During the 2008 Great Financial Crisis, the federal government was compelled to rescue key companies vital to the nation’s economy, such as General Motors, Chrysler, Citigroup, and AIG, from the verge of collapse. The U.S. took equity stakes in these private organizations with extreme apprehension, even going so far as to encourage the companies to repurchase their equity as soon as possible. President Obama characterized the situation as: “We are acting as a reluctant shareholder because this is the only way to help [General Motors] succeed.” Fortunately, estimates found that the government recovered all, or nearly all, the $450 billion in Troubled Asset Relief Program (TARP) dollars by 2014.
The COVID-19 pandemic introduced another moment of urgency, prompting both the Trump and Biden administrations to inject trillions into the economy, primarily in the form of grants or forgivable loans.
Return on investment
However, Trump and Biden’s intervention during the pandemic differed greatly in their impact.
For example, both presidents took minor equity stakes in their emergency relief programs to airlines, but they pale in comparison to the total package cost. In fact, President Trump, the self-proclaimed “great deal maker,” gave away six times as much as the TARP program under President George H. W. Bush, and 10 times more than President Biden’s $50 billion CHIPS Act, through his more than $3 trillion in pandemic relief funds.
President Biden’s CHIPS Act, which passed on a narrow but bipartisan vote, injected more than $50 billion to boost domestic research and manufacturing of semiconductors. The program catalyzed over $500 billion in private sector commitments, promising a more than 10x return. Regrettably, implementation was fraught with challenges and setbacks, most notably affecting Intel. And President Trump, never one to miss an opportunity to meddle, soon intervened upon his return to the White House.
Like spotting weakened prey, Trump pounced to re-trade the deal with Intel. While Intel was in a challenging strategic and financial position, it had not reached a point of crisis, nor was it near one. The semiconductor industry is essential to U.S. national security. However, private investors were still willing to provide capital to Intel. Domestic competitors were interested in acquiring the floundering manufacturing unit.
Now, the government stake in Intel threatens to place other potential American competitors, such as Broadcom, AMD, and Qualcomm, at a disadvantage should their interests come into conflict.
Future fears
Such crony-like capitalism has also made CEOs from other industries wary. The pharmaceutical industry receives tens of billions of dollars a year in federal funding for critical research and development, as do the defense and space exploration industries. Does the government then deserve equity stakes in companies like Pfizer, Lockheed Martin, or SpaceX?
In agribusiness, Archer Daniels Midland, Bunge, Cargill, Caterpillar, and John Deere have collectively received nearly $25 billion in federal subsidies, loans, guarantees, and bailouts since 2000. Over $30 billion in disaster payments and pandemic relief were allocated to support livestock operators in the past decade. Similarly, the oil and gas industry has long been a beneficiary of favorable tax treatment, costing the government billions of dollars annually. Will companies from these industries soon be subject to seizure?
President Trump apparently has forgotten that much of his real estate success has come on the back of federal, state, and local tax incentives. Presumably, he would have preferred to keep Presidents Ronald Reagan and Bill Clinton out of his private business dealings when he was building his company.
Many U.S. companies, as well as entire industries, can attribute their success to partnerships with the federal government. But previous presidents seem to understand something that Trump does not. Taxpayers are well-rewarded for these strategic public investments, as funding has significantly contributed to building the strongest economy in modern history.
Milton Freidman, a pillar of genuine conservative economic thought, warned in his 1990 book Free to Choose “The combination of economic and political power in the same hands is a sure recipe for tyranny.”
Perhaps Trump should give it a read.
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