Bucking tradition, Trump pushes the US as an investor in for-profit companies
What happens when your shareholder is Uncle Sam? It鈥檚 a question that U.S. corporations and investors are asking as the Trump administration acquires stakes in for-profit companies, breaking with decades of free-market economic orthodoxy.
The latest deals involve a firm helping develop a remote copper and zinc mine in Alaska and another company with a lithium mine in Nevada. Much of the world鈥檚 lithium, which is essential for battery production, is processed in China. The U.S. government to Lithium Americas, which is building a lithium mine and processing plant. Now the Trump administration wants to 聽as a way to accelerate the domestic production of critical minerals, Reuters reported recently.
A similar deal was negotiated with U.S. chipmaker Intel, which had received billions of dollars in grants under the Biden administration to build domestic plants but is losing money and struggling to stay competitive. , described as a 鈥減assive ownership,鈥� which means it agrees to vote with the company鈥檚 board with limited exceptions.
Why We Wrote This
Government-owned enterprises are a hallmark of socialist economies. By positioning the U.S. as a long-term investor, Mr. Trump says he is securing vital resources. But he may also be fundamentally changing how America鈥檚 economy operates.
By contrast, Japan-based as a condition of its $14 billion takeover of U.S. Steel, giving the government a say, including veto power over critical decisions, in domestic steelmaking.
To conservatives who see limited government and free markets as the wellspring of prosperity, state ownership is anathema. It risks favoritism, cronyism, and capital misallocation, all while putting the taxpayer on the hook for future losses if companies fail.
鈥淭his could end up hurting the very companies and sectors you鈥檙e trying to help,鈥� warns Scott Lincicome, a senior fellow at the Cato Institute, a think tank that favors free trade and markets.
But free-marketeers no longer command the heights of GOP economic policymaking. In Congress, only a few holdouts, such as Kentucky Senator Rand Paul, have criticized the Intel investment as government overreach. On the MAGA right, President Donald Trump鈥檚 interventionist approach to the economy, from punitive tariffs and trade protectionism to taking shares in companies, is lauded as the path to both greater prosperity and national security.
By positioning the government as a long-term investor, Mr. Trump may fundamentally change how the U.S. economy operates, say analysts. 鈥淚f this becomes [a] permanent policy, it will represent the most significant restructuring of American capitalism since the New Deal,鈥� says H. Sami Karaca, a professor at Boston University鈥檚 Questrom School of Business, via email.
Government-owned enterprises are a hallmark of socialist-oriented economies, including China鈥檚. But even capitalist-oriented democracies retain ownership in public and private companies that are deemed strategic. France, Germany, and Spain, for example, hold stakes in Airbus, the European aerospace manufacturer.
The U.S., however, has largely eschewed government ownership of companies except during wartime and other emergencies, including financial crises. Since the Reagan era, Republicans have pursued economic deregulation. They have also accused progressives who want to keep capitalism in check of standing in the way of wealth creation.
From loans to equity 鈥� does it matter?
The Trump administration argues that taking stakes in mineral projects 鈥� the lithium deal comes after 鈥� enables the U.S. to break China鈥檚 stranglehold on supply chains. Speaking two weeks ago on Fox Business, Kevin Hassett, who heads Mr. Trump鈥檚 National Economic Council, said it wasn鈥檛 鈥渁 socialist policy. The government isn鈥檛 going in and trying to take over these companies the way a socialist would. 鈥� We鈥檙e just making sure our national security is preserved with a small equity stake.鈥�
Analysts say the key difference with how past administrations pursued national security goals in domestic industries is Mr. Trump鈥檚 investment strategy. The U.S. government has typically provided loans to companies. But it has not taken equity stakes that could tip the playing field toward government-owned enterprises.
In 2021, Mr. Hassett published a book, 鈥淭he Drift: Stopping America鈥檚 Slide To Socialism,鈥� that criticized the Biden administration for, among other policies, expanding the government. He told a Washington Post columnist that 鈥�. And it鈥檚 profit maximization that makes things efficient, drives productivity higher.鈥�
At a recent National Conservatism Conference in Washington, speakers praised the Trump administration鈥檚 willingness to use government levers to promote industrial strength at home. Some cited Airbus as a model for a government-owned corporation. Others railed against U.S. corporations that moved factory jobs overseas to lower production costs.
George Bogden, , said the threat from China 鈥� which he said has a 鈥渒ill switch鈥� in rare-earth exports 鈥� had forced a rethink of the government鈥檚 role in the economy. The investment in MP Materials was a prime example, he told a panel talk on industrial policy. 鈥淭hat was not business as usual,鈥� he said. 鈥淚t was the Pentagon breaking with old trade orthodoxy and saying national security comes first.鈥�
On the government鈥檚 role in the economy
Under President Joe Biden, Congress passed major legislation to funnel subsidies to manufacturers of clean energy technology and computer chips. At the time, most Republicans criticized the policy as wasteful spending and argued that the government was meddling in private enterprise.
By taking stakes in companies in strategic sectors, the Trump administration is going further than its Democratic predecessor, says Mr. Lincicome. 鈥淚t鈥檚 the next logical step in the industry-policy slide,鈥� he says.
President Biden鈥檚 industrial policy subsidized critical industries with tax credits, loans, and grants. But it largely left the market to pick winners, says Professor Karaca. What鈥檚 different now is that the Trump administration is 鈥減racticing selective state capitalism鈥� by investing in and co-owning 鈥渘ational champions.鈥�
The Trump administration insists that its investments in domestic companies are rooted in geopolitical competition and defense strategy, since without access to rare earths and computer chips, the U.S. is at a disadvantage to China in civilian and military technology.
鈥淲hat we鈥檙e witnessing is American capitalism鈥檚 institutional flexibility responding to changed geopolitical realities,鈥� says Professor Karaca.
Critics say the government determines which industries are considered critical for national security, so the list keeps expanding, from steel and pharmaceuticals to lithium and computer chips. The risk is that Uncle Sam鈥檚 investments will divert capital from more productive companies into those in which the government has put its thumb on the scale, dragging down the overall economy.
Another concern is that government-owned companies will make decisions that are guided by politics rather than commercial priorities, such as where to locate a plant. (U.S. Steel in Granite City, Illinois.) And companies that run into trouble may require more capital in the future.
From deindustrialization to protectionism
But in regions hit hard by deindustrialization, textbook arguments about capital misallocation may not carry much weight. From this vantage, government ownership of strategic companies goes hand in hand with Mr. Trump鈥檚 protectionist tariffs and .
This is a political constituency that Democrats and Republicans have courted with economic protectionism, says Darel Paul, a professor of political science at Williams College. Just as Mr. Biden declined to lift industry-specific tariffs imposed on China by Mr. Trump during his first term, policies to protect certain industries have carried over to the current administration. (Subsidies for clean energy companies, however, have ended.)
鈥淭he broad outlines have become a consensus,鈥� Professor Paul says.
Still, he believes that the equity stakes that the Trump administration has taken may be less enduring. 鈥淥n the Republican side, they鈥檙e not going for that over the long run,鈥� he predicts.
The last time the federal government became a major shareholder was after the 2008 financial crisis, when it bailed out stricken banks and injected over $17 billion into two struggling automakers, General Motors and Chrysler. These rescue plans, which were controversial at the time, were time-bound: The government recouped its investments and exited the companies.
In 2011, the Obama administration faced political blowback after Solyndra, a solar panel producer, defaulted on a $535 million loan from the Department of Energy. Republican lawmakers attacked the administration for lending public money to a startup in an unproven, emerging 鈥済reen鈥欌�� energy company. Mike Pompeo, then a Republican lawmaker from Kansas, that Solyndra couldn鈥檛 match.
鈥淪o the globe succeeded in reducing the price, but the American taxpayers lost half a billion dollars by us trying to pick a particular business,鈥� he said.
