In just seven months in office, President Donald Trump's administration has pursued a series of highly unconventional economic policies that, taken together, amount to the deepest government interventionism into the economy of any president since the Reagan era. In doing so, Trump has largely eschewed what both parties had accepted as the tenets of American capitalism for nearly five decades — the long-standing U.S. economic traditions that once left Adam Smith's Invisible Hand to guide the market. The Trump administration's emerging version of capitalism is one of expanded government interventionism, abandoning laissez-faire orthodoxy and centralizing authority around the president. In effect, Trump and his economic advisers want to be able to control all key aspects of economic planning, sidelining other parts of the U.S. political and economic system — including both government institutions and the private sector.
The administration's interventionist policies include aggressive protectionism, anchored by the highest tariffs since the 1930s, and the rejection of the independence of the Federal Reserve, with the administration pressing for lower interest rates regardless of concerns about inflation. But the most significant change has been the growing role of the White House in the private sector, supplanting the market as the arbiter of the success or failure of U.S. companies and industries. This shift has been most recently evidenced by the Aug. 22 agreement between the administration and chipmaker Intel to convert $8.9 billion in federal grants awarded to the company into a 9.9% government stake in the company, making it its largest shareholder. But the list does not stop there. In June, the U.S. government received a golden share in U.S. Steel, giving Trump and the federal government veto power over nearly a dozen actions the company can take. In July, the Defense Department reached a deal to become the largest shareholder in rare earth mining and refining company MP Materials. In August, AMD and Nvidia agreed to hand over 15% of their revenue for sales in China in exchange for approving export licenses for AI chips that the two companies want to sell to the country. U.S. officials have since stated that the Intel, AMD and Nvidia deals are models that could be used for other companies and in other sectors, signaling that more may be to come. Commerce Secretary Howard Lutnick even hinted in an Aug. 26 interview that similar arrangements could occur in the defense sector, calling Lockheed Martin ''basically an arm'' of the U.S. government.
And these are only the formal deals. Trump has also sought to influence corporate decision-making informally. The president has threatened companies with punitive measures, often tariffs, for not building more manufacturing facilities in the United States or reducing prices. Trump has used social media accounts and statements to criticize corporate decisions and economic forecasts by financial institutions. In May, he warned Walmart not to raise prices in response to tariffs. In August, Trump called on Goldman Sachs to hire a new economist after the bank published a report saying Americans would pay most of the costs of the tariffs he had introduced. Even some of the trade deals the United States has signed with foreign countries have included mechanisms that the Trump administration says will give it a say over investment in the United States, such as the fund agreed to with Japan. On Aug. 25, Lutnick said the money would be ''at the hand of Donald Trump and he can go invest it'' in areas that are important to American economic security. (The mechanics of the deal have been disputed by Japanese officials.) High-profile American CEOs have certainly listened. Many large U.S. companies have sent executives to meet with Trump, showering him with gifts as well as investment and other pledges aimed at demonstrating how they are aligning their corporate strategies with his preferences.
Trump and his allies have sought to build out the U.S. industrial base in strategic sectors by realigning Corporate America's incentives in three ways. The first, which probably has the broadest support in the Republican Party, is using tariffs to broadly realign the incentive structure around investments in manufacturing, forcing more companies to consider U.S. production in the long run. Second, the Trump administration is increasingly relying on deals with companies that give the White House a direct say in the companies' decisions. Thus far, these deals have ranged from taking a direct stake in the company (MP Materials, Intel) to a golden share (U.S. Steel) to a revenue-sharing model (AMD, Nvidia) that could funnel resources into specific funding priorities. Finally, Trump has used aggressive rhetoric and naming-and-shaming of companies to force them to align with his economic goals.
None of this is to say that Trump's brand of capitalism has completely abandoned political-economic views that have dominated the United States since the 1970s. A hands-off approach to regulation, particularly digital and environmental, low corporate and personal income taxes and cuts to welfare spending are all hallmarks of Trump's economic policies. Nevertheless, the shift under Trump has led critics to warn that a more activist White House risks upsetting the economic principles that have allowed the United States to flourish in recent years compared to other developed economies.
Supporters of Trump's activist shift argue that the old model was outdated and cannot succeed in an environment increasingly defined by growing strategic confrontation with China. For the last 35 years, the global system was led by the United States, which lacked a serious economic or technological rival — meaning that any strategic liabilities created by allowing U.S. companies to focus on maximizing profits and establishing long-winding global supply chains were masked. With the United States now in a heightened state of strategic competition with China — arguably the largest threat to its global dominance since the fall of the Soviet Union — supply chain dependence on foreign manufacturing is now a significant liability to U.S. economic stability and national security, as evidenced by Beijing's ability to inflict significant supply chain disruptions earlier this year by briefly restricting exports of rare earth magnets. Moreover, supporters argue that a hands-off approach to the economy has led to many Americans, particularly blue-collar workers, being left behind economically, resulting in uneven job opportunities across society. In their view, bringing back high-quality jobs in the manufacturing sector for Americans without a college degree is essential for ensuring social stability at home.
Growing competition over critical and emerging technologies, including advanced computing, AI, biotechnology and green technologies, is also driving the push for the United States to take a more aggressive industrial policy. China, the European Union and many other countries globally are increasing state support for strategic sectors in myriad forms. It is no surprise that the Trump administration's deals with the private sector are focused on semiconductors, AI, critical raw materials, including steel and aluminum, as well as the automotive industry, which has historically been intertwined with defense during wartime. Proponents of U.S. government intervention in the private sector also argue that because other countries are rolling out industrial policies focused on boosting the development and manufacturing of critical and emerging technologies, the United States risks becoming a manufacturer of only the types of goods that no one else wants to manufacture unless it adopts a similar industrial policy.
Trump's interventionism is not entirely without recent precedent. The shift away from laissez-faire economics arguably accelerated during the 2007-08 global financial crisis. During the 2008 presidential campaign, the strong bipartisan consensus in support of free trade began to erode, with Democratic primary victor Barack Obama and his rival Hillary Clinton both arguing that declining employment in the manufacturing sector demonstrated the need to renegotiate the North American Free Trade Agreement with Canada and Mexico. As president, Obama, as well as his predecessor George W. Bush, also played a key role in bailing out General Motors and Chrysler between 2008 and 2010. The first Trump administration imposed high tariffs and export controls on China. These were kept in place by Biden, who also implemented a series of laws designed to boost the industrial base, including the CHIPS and Science Act, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. The equity deal with Intel is also reminiscent of an amendment to the CHIPS Act proposed by Elizabeth Warren and Bernie Sanders that would have required companies to give the U.S. government a warrant, equity stake or senior debt instrument in exchange for subsidies.
Trump's deals with Corporate America, as well as his attempt to strong-arm companies into taking actions he wants, create significant technological, economic, legal and geopolitical risks. Perhaps most significantly, if done at scale, Trump's intervention into the private sector creates significant corporate governance risks that will make the companies less efficient and competitive. Trump certainly could eventually reverse, particularly if there is an economic crisis, the courts stop some of the efforts or midterms result in a blue wave that leads to declining support for his policies among Republicans. However, for now, it appears that these restraints are more likely to cause him to pragmatically modify the strategy, pushing in the same direction rather than abandoning it entirely.
The deal struck between Intel and the Trump administration will probably not have a positive impact on the embattled company without having a negative impact on the economy at large. For much of the last 10 years, Intel has struggled mightily as the Taiwan Semiconductor Manufacturing Company (TSMC) has surpassed it to become the most advanced chipmaker in the world. Under Pat Gelsinger, who was pushed out as CEO late last year, Intel embarked on an ambitious plan to invest heavily in chipmaking capabilities to catch up with TSMC and increasingly build chips for other companies in addition to its own designs. However, Intel's massive splurge of investment into fabs has been beset by delays. Customers have gravitated toward TSMC's more established and lower-risk capacities. Intel's business has struggled: last year, the company posted an $18.8 billion loss. Trump is now personally invested in the success of Intel for political as well as economic and national security reasons. He is likely to push for a greater say in Intel's business, both to justify his decision to take a stake in the company and when looking at the state of the U.S. semiconductor industry. Intel even said in an SEC filing after the deal was announced that there ''could be adverse reactions, immediately or over time, from investors, employees, customers, suppliers, other business or commercial partners, foreign governments or competitors.''
Intel has stated the U.S. government will not get a board seat as part of the agreement and has agreed to vote in line with Intel's board of directors in shareholder votes. However, Trump will still be able to influence decision-making informally. He may have already done so: converting Intel's grants into equity was reportedly a White House proposal. Notably, the deal comes as Intel has been slowing down investments in U.S. fabs due to financial challenges. The White House will likely push instead for further investment in the United States, regardless of the risk to Intel. Moreover, the deal also includes a 5-year warrant that will allow the U.S. government to take another 5% stake in the company if Intel ceases to own at least 51% of its foundry business — a mechanism that U.S. officials reportedly view as a poison pill designed to prevent Intel from divesting from its foundry division — which would undermine U.S. goals to boost domestic manufacturing capacity.
A close relationship between the federal government and some private companies also reorganizes their incentive structures. Given Trump's desire to have companies show ''loyalty'' to him and the United States, any company or foreign state seeking to curry favor with the administration now has an incentive to work with Intel and any other company directly backed by the U.S. government. Large U.S. tech companies all now have a motive to place orders with Intel, even if Intel itself is struggling to compete with TSMC on a qualitative basis, creating technology risks for the U.S. competitiveness on the whole and undermining economic efficiency. Trump's political allies are also likely to put pressure on the president to push companies to expand investments in their home areas to create jobs, even if those investments do not make sense from a business perspective. For instance, the government may push Intel to more rapidly expand its chip-manufacturing facilities in Ohio, Vice President J.D. Vance's home state. Beyond Intel, Trump's focus on boosting manufacturing as well as favoring certain companies creates a high risk of distorting capital allocation, further undermining U.S. economic competitiveness and exacerbating the challenge of Trump's tariffs reducing economic growth potential.
Deals between Washington and private companies are also provoking retaliation against those firms abroad. The AMD and Nvidia revenue-sharing agreement has sparked national-security concerns in Beijing, which was already concerned about U.S. export restrictions on powerful chips and the prospect of all chip exports being cut off in the future. The deals will further heighten Beijing's anxieties about U.S. backdoors being inserted into chips produced by Nvidia and other companies working closely with the U.S. government. China is now more forcefully deterring Chinese technology companies from using Nvidia chips. Moreover, U.S. state support for the companies creates risks that China or European governments may view the support as illegal subsidies. They may then subject these firms' exports to countervailing anti-dumping and anti-subsidy duties — measures that could have a longer-term and broader impact on U.S. export competitiveness.
Trump's strong-arm strategy is also likely to deter companies from investing in the United States or trying to keep government intrusion at arm's length if possible. Already, TMSC has had discussions about returning its $6.6 billion in grants under the same acts from which Intel benefited, in order to quash efforts by the Trump administration to convert those grants to equity. Any future industrial policy initiatives by the United States will also result in at least some companies being hesitant to try to qualify for grants, tax breaks and other incentives over concerns about what the United States may do. However, companies in a better position than Intel, like TSMC, may be better able to withstand pressure.
Proponents of Trump's economic strategy argue that the above risks are acceptable if the United States is able to achieve its goals. However, this is unlikely. A 2021 study by the Peterson Institute for International Economics scoring the previous five decades of U.S. industrial policy initiatives found that most trade measures (i.e., tariffs) and subsidies to targeted firms largely failed to achieve their objectives, including boosting the industry to become more internationally competitive and advancing the technology frontier. Instead, the report found that industrial policy initiatives were most successful in achieving both when they were primarily designed around increased public-private partnerships in research and development. Particularly effective was government support at the nascent stage when the commercial sector may not provide enough financial support for emerging technologies, such as through the Defense Advanced Research Projects Agency program, the Pentagon unit, which it scored across the board as an A+. Yet even here, the authors of the report found that it was best for the government to be neutral when it comes to awarding such funding instead of trying to pick winners. Trump's industrial plan involves boosting competitiveness through the heavy use of trade measures and some subsidies, while cutting R&D and basic research funding. It is not consistent with the findings of this and other well-regarded studies, making it unlikely at the highest level to succeed.
Trump's goal of boosting the development of the U.S. critical raw material industry may have some success in reducing reliance on certain Chinese raw materials, including rare earth magnets, but holistically reducing U.S. reliance on global supply chains for raw materials is simply not practical. A targeted approach to boost the resilience of rare earth magnets, given that China controls around 90% of the global processing of rare earths, is probably an area where the United States could benefit. Investments into MP Materials and other defense sector initiatives to spur non-Chinese development will therefore likely be positive for the United States. However, the Trump administration has set its sights on protecting the entire domestic critical raw material supply chain, through tariffs on copper imports, the use of steel and aluminum tariffs so broad that they apply to, among other things, deodorant spray in a metal canister, and ongoing national security investigations into furniture and critical raw material imports. While the White House has sought to reach critical raw material deals with countries that have mining opportunities abroad, it has largely eschewed any cooperation with its allies to develop processing facilities outside China, even when other locations may make more commercial sense.
Trump's support for AI chip producers is likely to be even more problematic. At best, the deals are unlikely to have any significant impact on innovation, as they are not structured to support R&D and in the case of Nvidia and AMD limit revenue flows and therefore capacity to invest in R&D. At worst, Nvidia and AMD will see market share opportunities decline in China due to Chinese national security concerns and see Chinese competitors — now seeing their own opportunities to invest in more R&D and expand — succeed in permanently hiving off the Chinese market from foreign AI chips. Chinese AI chip developers may also use higher domestic revenues to become more competitive overseas. Chinese constraints on quickly catching up to TSMC and the West on chipmaking at leading nodes is a constraint on them matching Nvidia or AMD on performance. Their chips may nonetheless be cheap and ''good enough'' that they find a growing market share outside of China.
Returning to Intel, U.S. financial support alone is highly unlikely to have a major impact on the chipmaker's capacity to invest in domestic fabs. The grant-to-equity conversion is not injecting new capital into the struggling chipmaker. Even with an extra $2 billion SoftBank has agreed to inject into the company, $10.9 billion is a drop in the bucket for the semiconductor industry. Over the past five years, Intel has spent $108 billion in capital investment and $79 billion on R&D, both of which were primarily focused on building out U.S. manufacturing capacity. Trump may be able to pressure companies to sign deals with Intel instead of TSMC. But such deals are likely largely to come at the expense of TSMC's own investments in Arizona, where it has spent tens of billions investing in new fab capacity, making it an effective wash at the U.S. level. A best-case scenario would see Intel returning to its glory days as a manufacturing company at leading nodes, preventing TSMC from maintaining a monopoly in such manufacturing, but the scale of investment needed to do that likely measures in the hundreds, not tens of billions of dollars, over the next decades.
Finally, Trump's goal of centralizing U.S. economic policy and planning around himself is also facing a significant challenge in dealing with the size of the U.S. economy — a challenge that countries using a central planning economic model have long struggled to deal with. Trump's focus has been on pressuring large U.S. companies while ignoring small- and medium-sized enterprises, which collectively make up around 44% of U.S. GDP. Trump simply is in no position to influence or align decisions by smaller companies with his overall economic goal, even if his strategy was a perfect one for the U.S. economy, creating persistent liabilities for small- and medium-sized companies that are now likely to lose out on opportunities to larger established competitors that have the size and heft to deal with Trump directly and seek favorable carveouts to tariffs and other U.S. policies that are hurting them directly. While Trump may say he owns the U.S. store, in practice, his management can only be so effective.
