Adrian Wooldridge
In George Orwell’s Animal Farm, the animals initially embrace the slogan “four legs good, two legs bad.” But, when the pigs take over and re-establish relations with humans, they modify the slogan to “four legs good, two legs better.”
Something similar is happening in the US. A decade ago, conservatives bleated in unison “markets good, state bad.” Now they bleat “markets good, the state better.” Under President Donald Trump, America is embracing a new form of state capitalism, with huge consequences not just for the economy but the health of the republic.
The Trump administration has acquired equity stakes or a “golden share” in companies ranging from Intel Corporation and US Steel to Westinghouse nuclear reactors and Lithium Americas. In a direct echo of China’s civil-military fusion, the US Department of Defence is set to invest $US1 billion ($1.45 billion) in L3Harris Technologies. While the collective value of these equity stakes is now in the low tens of billions, Bloomberg Intelligence expects that the administration will continue to tap into the hundreds of billions in federal funding meant for loans and grants to instead secure equity in public and private companies.
The administration has also wielded its grip over the state’s regulatory apparatus to shape the economy in remarkable ways: For example, it predicated Nvidia’s sales to China of its H200 advanced chip on a payment of a 25 per cent export fee to the US government and forced Apple and Taiwan Semiconductor Manufacturing to pledge more investment in the US if they wanted to continue doing business with China.
Donald Trump has also taken to bossing companies around with the relish of a Soviet central planner — telling pharmaceutical and credit card companies to lower their prices and instructing defence companies to halt dividends and share buybacks and redirect the money to building productive capacity. He has even weighed in on the sale of Warner Bros Discovery to Paramount Global.
The most important reason for America’s embrace of state capitalism is the rise of China as both an economic peer and a military threat. Xi Jinping has boasted of his intention to challenge the US-dominated world order and has set about fusing the state’s economic and military capacities and tightening his alliances with other autocratic powers. Both Democrats and Republicans agree that the US has no choice but to respond to this threat by expanding the state’s powers to regulate the economy – for example, by reshoring some manufacturing activities to ensure that the US has an “arsenal of democracy” or by securing supplies of chips and rare earths.
A combination of ideology and dealmaking have complicated this effort. Trump may be an instinctive rather than an ideological politician, but his two basic instincts — that foreigners are trying to rip off America and that he, Trump, knows best — add up to an ideology of national corporatism.
Trump is surrounded by ideologues such as Vice President JD Vance, who thinks that the economy should be rejigged to promote moral virtue, and tech nationalists such as Alex Karp, the chief executive of Palantir Technologies, who believes in “the union of the state and the software industry” to promote national greatness.
Trump being Trump, politics is also always personal — and state capitalism is always in danger of turning into family capitalism. After ousting Venezuela’s president Nicolás Maduro, Trump announced that he would take direct control of the country’s oil revenues and hinted that he might block Exxon Mobil from the country because the company’s chief executive was insufficiently enthusiastic about investing there. He unilaterally waived deadlines for the Chinese technology company ByteDance to sell the social media app TikTok and then brokered a deal to spin it off to a group of investors, several of whom had ties to the president. Trump’s eldest child, Donald Jr, is a partner in a venture capital firm, 1789 Capital, that took a significant stake in Vulcan Elements three months before the administration decided to back it with a loan of more than half a billion dollars and a $US50 million stake by the Department of Commerce. Jami Miscik, Peter Orzag and Theodore Bunzel, of Lazard Political Advisory, argue that America’s state capitalism is moving into a new phase — from the rules-based industrial policy that characterised the Biden administration to discretionary state capitalism.
Even at its best, the state is a problematic capitalist. Government officials tend to be fuzzy about their purposes (are they creating jobs or promoting growth?) and slow to pull the plug on failure (the Obama administration’s investment in the green company Solyndra LLC cost the taxpayer more than $US500 million). The International Monetary Fund estimates that the misallocation of resources associated with China’s industrial policies between 2009 and 2018 lowered aggregate productivity by around 1.2 per cent and may have reduced China’s gross domestic product by up to 2 per cent.
Add feuding ideologists and a wayward president to the mix and you are in for trouble. Trump is the worst sort of state capitalist — an unpredictable one. He has wielded tariffs, his favourite and most important weapon, with abandon. He has taken to threatening not just individual businesses but individual businesspeople — he publicly demanded the resignation of the CEO of Intel, Lip-Bu Tan, before changing his mind.
Yet there is little doubt that state capitalism in some form is here to stay, not just because of the enduring rivalry between China and the US but also because of deep-rooted changes in the economy, which is now dominated by giant tech companies increasingly intertwined with the state. The state is determined to use Big Tech to improve its ability to defend itself (and seek rents). But these tech companies have also latched onto the nation-state as the next source of corporate growth. If the last generation of tech giants such as Facebook and Twitter focused on titillating consumers and harvesting advertising dollars, the new generation such as Palantir and SpaceX focused on modernising the defence and intelligence establishments and harvesting taxpayers’ dollars.
The US is also caught up in what two academics, Ilias Alami and Adam Dixon, call a “state capitalist spiral.” Countries are competing to impose tit-for-tat restrictions on trade and equip themselves with the new weapons of economic warfare, sovereign wealth funds and state-owned enterprises. Restrictions on trade in goods and services increased fivefold between 2015 and 2025. The Sovereign Wealth Fund Institute calculates that the assets controlled by SWFs ballooned from less than $US1 trillion in 2000 to more than $US11.8 trillion in 2023. The Organisation for Economic Cooperation and Development calculates that half of the world’s 10 biggest companies and 132 of its 500 biggest are SOEs.
This new world of intertwined state and corporate power may seem unappetising, perhaps terrifying. But we are unlikely to unmake it anytime soon given the threat from China and the power of big tech. Indeed, Joe Biden’s response to Trump’s initial experiment with state capitalism was to reinforce it rather than unwind it.
The best response in the short term is for Americans to try to manage state capitalism better, using antitrust legislation to keep Big Tech in line, resisting the temptation to use the China threat to interfere in every corner of the economy and, and remaining alert to rent-seeking and cronyism. That may be an unlikely prospect for the current US administration. Yet the rise of state capitalism makes the quality of government more important than ever, and the case for far-reaching reform even more urgent.
Bloomberg
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