A New State Capitalism
Why the U.S. government’s increasing involvement in business deals is undermining our democracy.
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Not so long ago, the distinction between America’s market-based economic model and its main alternatives—or rivals—looked reasonably clear. Before 1989, there was the sclerotic shortage economy generated by Soviet-style economic planning. More recently, there was Europe’s “cuddly” capitalism, and China’s state-run version of it—all standing in sharp contrast to America’s “cutthroat” variety.
Reasonable people could dispute the relative merits of European and American versions of capitalism, but most would agree that the Chinese model, lacking democratic accountability, suffered from serious flaws—notwithstanding China’s impressive growth record. Those included picking economic winners and losers, the exercise of state and party control over “strategic” firms, the fuzzy line between the national interest and the balance sheets of leading corporations, and a lack of inhibition about deploying nominally private assets in pursuit of government policy.
Those flaws were real, which is why it is so disconcerting to see the rise—largely under the radar—of an American version of state capitalism. Yes, there is the gaudy, scandalous self-dealing of White House envoys such as Steve Witkoff and Jared Kushner, obscuring the difference between private interests and official government policy. There is Trump’s exercise of arbitrary power in setting tariff rates, or extorting the private sector as a precondition for clearing regulatory and antitrust obstacles set by the federal government.
America’s drift toward state capitalism, however, is deeper and more lasting than just Trump’s idiosyncrasies and corruption. The return of industrial policy into “strategic” sectors was a hallmark of the Biden presidency. And while the amount of norm breaking during Trump’s second term is an aberration by any standard, it would be a mistake to dismiss all of the precedents it has set as flukes to be rolled back by a future Democratic administration.
Consider Trump’s oftentimes confusing policies on semiconductors, mangling long-term strategic consideration in pursuit of short-term revenue objectives. In April 2025, the administration banned the export of Nvidia’s China-bound H20 processor on national-security grounds. By August, it had reversed itself—on the condition that Nvidia and AMD hand Washington 15 percent of their China revenues in exchange for the licenses.
By December, the more powerful H200 processor—roughly six times the H20—was cleared for “approved” Chinese customers, this time with the government taking a 25 percent cut. The same export controls Washington spent a decade building were undone—for an arbitrary fee. A bipartisan bloc in Congress, alarmed that the H200 would hand Chinese AI labs a meaningful lift, scrambled to block the sale—in the end, the deal was blocked by Beijing after finding a domestic alternative.
The effective export tax is ineffective in preventing the chips from falling into the hands of our adversaries—and it may well end up being unconstitutional. Unless courts rule against it forcefully, future presidents will enjoy a new tool of discretionary power over the private sector.
The Intel case brings America even closer to explicitly state capitalist territory. In August 2025, the government took a 9.9 percent stake in the chipmaker—433.3 million shares at $20.47, an $8.9 billion investment—by converting unpaid CHIPS Act grants and Defense Department “Secure Enclave” money into equity. Commerce Secretary Howard Lutnick’s logic was simple: the government should get an equity stake for its money.
For now, the holding is passive, with no board seat. The deal has also been wildly profitable on paper: after Intel’s shares surged, the stake was worth roughly $36 billion by the spring—one of the most lucrative investments in the history of the federal government. Washington also pocketed a five-year warrant for another 5 percent of the company, exercisable if Intel ever ceases to control a majority of its foundry—a hedge designed to keep the chipmaker’s manufacturing arm American. Setting aside the cast of characters populating this administration, one could easily imagine a Democratic president deploying similar tools in pursuit of more or less well-defined national security goals.
The Department of Defense has also become the largest shareholder in MP Materials, operator of America’s only rare-earth mine, with a roughly 15 percent position wrapped in price floors and offtake guarantees. The Department of Energy took stakes in the lithium developer Lithium Americas. The Pentagon also took 10 percent of Trilogy Metals, tied to an Alaskan mining project the Biden administration had blocked. A wave of pre-revenue rare-earth startups followed. By April 2026, the running total had reached $20.9 billion across fifteen deals—the largest federal push into strategic industry since the Second World War, according to the Council on Foreign Relations—with the administration reportedly eyeing dozens more.
Again, there is (or could be) a national security logic to these moves. China’s threat to choke off rare earths is real, and the war in Iran exposed how fragile the supply chains have become—for everything from magnets to interceptor drones. A government that lets its adversaries monopolize the inputs of modern defense is failing at its job. And there is an old American tradition—from the transcontinental railroad to Operation Warp Speed—of the state midwifing industries the market alone would underprovide.
Yet what risks emerging, especially in the light of America’s rule-of-law crisis, is a system in which access to the American market, export licenses, and capital itself, will run through political favor—especially beyond a certain scale.
Conversely, one must worry about the outsized power of the enormous private sector institutions that undergird the ongoing technological transformation—and with it the future of our democracy. Nvidia is the largest company in the world, valued at more than $5 trillion, followed by Alphabet (Google), Apple, and Microsoft.
SpaceX, freshly public at a valuation north of $2 trillion, runs the satellite network on which the Pentagon increasingly depends. Can the U.S. government, and American voters, tolerate a situation in which our basic technological infrastructure and some critical functions of the federal government depend on, and generate profit for, a narrow segment of gargantuan private actors?
There is no clean exit from the problem of concentrated economic power in frontier industries that are laying the groundwork for the economy of tomorrow. For free market conservatives, this may seem like no problem at all—at least in theory. In a reality of flawed political institutions, however, concentrated economic power is bound to translate into exactly the kind of corruption and kleptocracy that we see flourishing under the second Trump administration. It should also give one pause that SpaceX’s float on Nasdaq was preceded by an agreement to modify the exchange’s underwriting and index rules in SpaceX’s favor—a highly unusual step, which speaks to how far removed we might be from a world of unadulterated free markets.
The political left, meanwhile, will want to treat compute as a utility, as the railroads and the power grid were before it. Under both extremes, the substantive outcome risks being the same—once-innovative industries transformed into lazy, rent-generating incumbents, whether under private or government ownership.
Managing the ongoing transition successfully will require transparent, durable rules, as well as impartial anti-trust enforcement. What America does not need are nationalizations, heavy-handed statism, or a series of opaque, deal-by-deal shakedowns negotiated by whoever holds the pen. But laying down rules of the game for the economy of tomorrow, as neutral and economically efficient as possible, is no mean feat under America’s broken politics.
At the same time, continuing on the default trajectory leads nowhere good. A U.S. government that owns a tenth of a critically important company it regulates is not a neutral umpire. A White House that is able to grant or withhold 25 percent export waivers wields a lever over Silicon Valley that no federal statute ever conferred. The temptation to use such leverage for ends that have nothing to do with national security—a flattering headline, a campaign contribution, a rival punished—is precisely the temptation the rule of law exists to constrain.
Forget Trump and Trumpism: America’s biggest challenge in the next generation is to avoid the entrenchment of a system of state capitalism with U.S. characteristics rather than Chinese.
Dalibor Rohac is a senior fellow at the American Enterprise Institute, an advisor at GLOBSEC, and a contributing editor at American Purpose.
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I think the questions raised here are all valid. I would add that we face them with every government action or rule or law that isn't "universal". I've often heard "place-based" programs proposed as a solution (or at least an approach) to the US's 'hinterland' problem. But how could such programs avoid being wide open channels for corruption and political favoritism? The only defense against it (or, put another way, the precondition to creating/restoring a credible and respected administrative state) would be a political culture that absolutely demanded fair dealing and rules-based decision-making. We are far, today, from having one.