State Capitalism in America: The Government as Investor, Broker, Rentier…Thug?

In the nine months since President Donald Trump began his second term, the state has taken unprecedented action in the U.S. private sector. The departments of Commerce, Defense, and Energy have acquired equity stakes in individual companies, promising to use state power to increase the value of their investments. The president is personally brokering deals to shape where companies and countries allocate capital, while also directing the activities of professional services firms and weighing-in on Fortune 100 personnel decisions. Most notably, the U.S. government is now wielding powerful instruments such as export controls and tariffs to extract payments from, and shape the investment decisions of, specific private firms (including Apple and Nvidia). Together, these actions presage a new chapter for the world’s largest economy: American state capitalism.

Politicians from the market-skeptic left to the populist right have cheered efforts to subdue the invisible hand, uniting figures from Senator Bernie Sanders (I-VT) to Vice President JD Vance. Supporters of free-market capitalism, meanwhile, have condemned the Trump administration for “picking winners and losers,” with libertarians such as Senator Rand Paul (R-KY) finding common cause with liberals such as Senate Minority Leader Chuck Schumer (D-NY). Right-wing commentators have called those measures socialism, while segments of the business press have warned of a “command and control economy.” Opponents of the Trump administration have framed them as evidence of a slide toward authoritarianism.

Attention to individual acts of market intervention, however, has so far failed to fully understand the Trump administration’s actions as part of a single, evolving pattern of state behavior. Government intervention in the U.S. economy is not new; presidents have sought to steer investment before, from Franklin Delano Roosevelt’s New Deal and wartime mobilization to Barack Obama’s financial crisis firefighting and Joe Biden’s industrial policy. What marks the current moment as distinct—and what warrants treating it as a novel, distinctly American form of state capitalism—is the government’s readiness to directly dictate the decisions of, and invest in, individual firms in a bid to create national champions and to wield state power to extract rent.

Certainly, many of the Trump administration’s goals are laudable—national security, job creation, and domestic reindustrialization—and its novel methods could make the nation more competitive against nonmarket economic adversaries. To quote U.S. Treasury Secretary Scott Bessent, the state will seek to create publicly held “assets for the American people rather than debt.” But unless government behavior is legal, predictable, and subject to due process, the administration risks doing exactly the opposite: destroying value for the American people.

This new form of “American state capitalism” can be conceptualized through three distinct ways in which the United States is now intervening in specific firms—as an investor, as a broker, and as a rentier. Clarifying those categories, and the legal and practical challenges they pose, can offer an antidote to a fourth, more corrosive, mode of government intervention: the state as a thug, operating outside the law to the detriment of the American people and the global economy.

Defining American State Capitalism

Academic definitions of state capitalism are broad, but most describe it as “an economic system in which the state uses various tools for proactive intervention in economic production and the functioning of markets.” Those tools are not limited to nonmarket economies such as Cuba or Venezuela. Political economists Peter Hall and David Soskice’s Varieties of Capitalism include the “liberal market economy” as a form of state capitalism, where countries such as the United States and the United Kingdom shape firm behavior through financial incentives and regulatory frameworks while relying on market forces to allocate capital. They contrast this with coordinated market economies, which are common in Europe, and rely on more formal coordination between firms, labor, and the state.

The Biden administration’s industrial policy exemplifies the liberal market economy model. Even when embracing industrial policy, the White House implemented its agenda through market-based instruments—tax credits, competitive grants or subsidized loans, and widely accessible loan guarantees—designed to shape sectoral-level incentives rather than dictate firm-specific outcomes. Individual firms received support, but the government did not decide where they should invest.

By contrast, what distinguishes the Trump administration’s approach, and what could signal the emergence of a distinct American form of state capitalism, is the normalization of firm-level intervention outside periods of economic crisis. Rather than rescuing failing companies (as in crisis-era bailouts), shaping sector-wide incentives (as in Obama- and Biden-era industrial policy), or operating through state-owned enterprises, the government is now directing individual firms’ capital allocation decisions to cultivate national champions in strategic industries.

Scholars Aldo Musacchio and Sergio Lazzarini note in Reinventing State Capitalism that states typically act either as majority owners (controlling management and operations) or as minority shareholders (acting passively with limited influence). The emerging American model fits neither category: the government holds small equity stakes and brokers deals yet nonetheless wields significant leverage over corporate decision-making, acting in effect as an activist investor.

In this light, American state capitalism as observed during the Trump administration can formally be described as:

“An economic system in which the government operates as an activist investor, deal broker, and rentier, leveraging its power to (i) direct firm-level capital allocation into chosen national champions in strategic industries; (ii) increase the value of its investments, and (iii) extract rent from access to its market.”

How President Trump’s Economic Intervention Breaks From the Past

State intervention in the economy is not automatically authoritarian, socialist, or even cause for alarm. Past U.S. government interventions have not injured the core capitalist features of the nation’s market economy, where private firms’ investment decisions still dictate the vast majority of resource allocation. Such interventions have ranged from the functional government takeover of the U.S. economy during the Great Depression and World War II to major company-specific government bailouts in the 1970s, including of Penn Central Bank, Lockheed, Franklin National Bank, and Chrysler.

More recently, the Treasury Department and the White House were criticized during the 2008 financial crisis for “picking winners and losers,” and the Troubled Asset Relief Program moved billions of dollars’ worth of securities onto the public balance sheet of the Federal Reserve. President Biden’s “modern supply-side economics” used generous tax credits and other subsidies to incentivize companies to invest domestically in clean energy, electric vehicle manufacturing, and semiconductors, among other sectors.

However, while state intervention in the economy is not new, the last nine months have seen the government act in three interrelated ways that represent a unique and far-reaching change:

It is worth reclarifying exactly how this differs from prior U.S. government programs to support critical industries, including the Biden administration’s investments under the CHIPS Act and the Inflation Reduction Act in semiconductors and clean energy technology. Those programs operated through open, rules-based processes that encouraged competition both in the allocation of support and in the commercial success that followed. They functioned via the liberal market economy version of state capitalism, where companies ultimately compete both for public backing and market share.

The closest parallel to today’s activity comes from the Biden Administration’s initial CHIPS for America Funding Opportunity, under which recipients of direct funding shared excess profits with the U.S. government. While supported by then Commerce Secretary Gina Raimondo as a way to make a return on the government’s investment, the policy was designed more as a transparency measure to ensure company forecasts were realistic, rather than for revenue generation. Tellingly, when asked about whether the government should receive “upside” from its industrial policy activity just before the 2024 election, National Security Advisor Jake Sullivan responded: “Our main concern fundamentally is will our policy actually produce progress on the clean energy transition, good paying jobs, protection of our national security, etc.? And if we're getting all of that, then that is real upside.” In other words, no.

By contrast, the Trump administration’s approach rests on the belief that the state can and should profit from national champions that it creates. Where earlier administrations acted as portfolio managers setting the conditions for markets to determine winners, the current model casts the government as an activist investor, directly shaping outcomes firm by firm and measuring success by stock price.

This shift may be as much cultural as it is ideological. The current administration behaves like a hedge fund: actively identifying, backing, and intervening in individual firms that it believes can become national champions. This behavior is unsurprising, given the Trump administration’s leadership draws heavily from hedge funds and private equity firms rewarded for value creation via aggressive firm-specific intervention—in stark contrast to the more cerebral economic architects of the Biden era who came from academia or more passive global asset managers like BlackRock.

Taking the administration’s statements at face value, the Trump administration’s loosely defined goals—creating domestic industrial and manufacturing jobs, bolstering sectors deemed important to U.S. national security, and receiving upside from economic activity to fund government activity—closely resemble some of the core tenets of the Biden administration. But in practice, the Trump administration’s ad hoc approach to economic risk and policymaking has left these firm-specific market interventions on shaky legal ground, making their long-term impact potentially fleeting.

Transformational shifts in government behavior like this endure only when they are institutionalized within the state bureaucracy. Civil servants require clear authority and durable mechanisms to manage investments that extend beyond any one administration. Making American state capitalism work, therefore, depends on building state capacity via the right legal authorities, stable funding sources, and professional expertise. In the United States, this begins with Congress establishing statutory powers and budgets that enable new or existing agencies to act predictably and lawfully. These themes point to the broader need to transform ad hoc experimentation into durable institutional architecture that achieves intended policy objectives and, importantly, shields those efforts from graft or abuse.

The Risks of State Capitalism Rightly Understood

The Trump administration’s efforts to expand the state’s role in the economy reflect a broader, bipartisan frustration with the pace and constraints of existing U.S. economic statecraft. The Biden administration advanced proposals that could ultimately have led to a similar role for the government, including a U.S. strategic investment fund, an expanded Development Finance Corporation equity scoring proposal, and other investment facilities at the Departments of Commerce and Defense. Comparable powers are being created across Group of Seven (G7) economies: Belgium’s Société Fédérale de Participations et d’Investissement, France’s Bpifrance, Ireland’s Strategic Investment Fund, and the UK’s National Wealth Fund all deploy public balance sheets strategically to shape national industrial priorities. Unsurprisingly, U.S. policymakers, regardless of party, are coming to the same conclusion.

The Trump administration’s current policy agenda differs most not in its goals, but in its methods. Endangering rule of law and putting private property rights into doubt injects systemic risk into the architecture of the American economy and financial system. Picking a single national champion in a specific sector (e.g., MP Materials in rare earths), even for the strongest of national security reasons, risks picking wrong. The government could not only choose incorrectly but also deny new, innovative companies the chance to succeed. Consider the additional barriers to an upstart chipmaker or new mining company when the federal government is backing Intel and Lithium Americas.

Instead of the executive’s current ad hoc roles as investor, rentier, and broker, Congress should institutionalize and regulate the playbook for interventions when such interventions are needed. Private brokers, rentiers, and activist investors are all highly regulated because of their ability to inadvertently injure the most important feature of a capitalist system: competition. Competition is encouraged or required throughout the sections of law and regulation that today govern the use of taxpayer resources.

When considering the monopolistic harms a particular firm could cause, former Federal Trade Commission (FTC) Chair Lina Khan urged policymakers to assess whether the company’s structure inherently creates anticompetitive conflicts of interest or other incentives to limit competition, even when such behavior does not immediately result in higher prices for consumers. A government-backed national champion in a sector of strategic importance would have deep incentives to stifle domestic competition. If the state wishes to use new tools to deploy or direct capital, Congress should first amend the law and regulation to both enable, and appropriately limit, its pursuit of policy gains. Those limitations could include extending FTC scrutiny, as performed today under the Hart-Scott-Rodino Antitrust Improvements Act, to this type of government intervention, effectively using an independent agency to police the rest of the executive branch.

Outside of competition, there is a second, more troubling reason why the U.S. government should formalize and institutionalize these firm-specific market interventions before going further: the risk of corruption. State intervention, particularly at the level of an individual firm, is inherently vulnerable to abuse. Under American state capitalism, the president and members of the cabinet can decide the fate of individual companies rather than a whole sector or strategic industry. That power can create immense wealth almost overnight, as the valuations of individual securities skyrocket. Strict safeguards of material nonpublic information are needed for the wide group of government officials and advisors involved, as well as the extension of the authority of existing watchdogs like the Securities and Exchange Commission (SEC) to state capital allocation. 

Investor, Broker, Rentier…Thug?

New firm-level interventions do not replace conventional industrial policy, which is still alive and well under the Defense Production Act, geographically directed and conditional government procurement, stockpiling efforts, and ongoing grants or subsidized lending programs. But unlike those broader incentives and interventions, American state capitalism sees the state as an investor, broker, and rentier. The following section examines in detail the state’s use of its power to target individual firms on often bespoke terms—identifying what is occurring, providing specific examples of this observed behavior, situating these actions in historical context, and then discussing the steps necessary to put these efforts on sounder legal footing.

Investor

The U.S. government has long allocated capital in the economy, whether indirectly through tax credits or directly via grants and loan guarantees. This activity expanded sharply during the 2008 financial crisis, and Biden-era economic policymakers argued such tools could address structural economic challenges outside of crises through industrial policy. Although past interventions aimed to stabilize key sectors or shape broad investment incentives, before 2025, the state had not taken multiple firm-specific equity stakes and actively influenced their value since the Great Depression and the Second World War.

Now, the Trump administration has converted CHIPS Act grants into a 10 percent equity stake in Intel; taken a golden share in Nippon Steel’s $14.9 billion acquisition of US Steel; used Defense Production Act Authority to invest $400 million in MP Materials, with a host of other price support and debt instruments; converted a Department of Energy Loan Program Office loan into a quasi-equity stake in Lithium Americas; and announced a 10 percent stake in Canada’s Trilogy Metals.

Most (if not all) of those investments lack a sound basis in U.S. appropriations law. The departments of Commerce, Defense, and Energy do not have explicit authority to use taxpayer resources to purchase the securities of publicly traded companies. The heavily caveated legal backbends that the firms involved in those transactions released in their SEC filings show that even the companies negotiating and benefiting from the investments are unsure whether the government is operating within its legal limits. In a filing, MP Materials itself acknowledged that the government’s intervention could be upended (emphasis added) in its July 9, 2025 SEC filing:

However, given the unconventional use of DPA Title III authority, the need for the Department of Defense to secure additional funds in the future in order to meets its obligations in these Transaction Documents, as well as the heightened sensitivity and complexity of contracting with a government entity, particularly in a high profile industry implicating national security, there can be no assurances that the authorization of and continued support for the Transactions will not be modified, challenged or impaired in the future, which could have a material adverse effect on our business, prospects, financial condition and results of operations. We believe there are multiple factors that may contribute to this uncertainty, including, but not limited to, the interpretation of current and future, and enactment of future, federal and international laws, regulations, administrative actions and rulings, and interpretations and changes to interpretations thereof, whether by a court or within the legislative or executive branches of the federal government; our ability to comply with any conditions or other requirements imposed by such laws, regulations, actions and rulings, and changes thereto; a determination by the legislative, judicial, or executive branches of the federal government that any aspect of Transaction Documents was unauthorized, void, or voidable.

At some point, a shareholder, competitor, or taxpayer will sue, grinding this type of activity to a halt and likely leaving the government, and therefore the taxpayer, holding the bag. Further, while a government stake in a specific company could appreciate in value, those investments lack a clear path for the taxpayer to reap their dividends and capital gains.

Broker

The government is using its power to direct where firms allocate capital, including through investment, merger activity, and acquisitions. This is sometimes done through carrots (e.g., removing regulatory burdens or lowering tariffs for specific companies), and sometimes through sticks. So far, President Trump has brokered the sale of TikTok to, amongst others, Oracle founder Larry Ellison, and White House trade negotiators strong-armed Korea’s Hanwha Group into a $5 billion dollar investment in the Philadelphia Shipyard. OpenAI, Oracle, and Softbank publicly credited Trump at the West Wing announcement of the $500 billion Stargate initiative.

The government as a deal-broker has clear antecedents, but the Trump administration has taken this activity to never-before-seen levels. The U.S. Treasury pushed the JP Morgan takeover of Bear Stearns during the financial crisis, and has subsequently acted in similar ways for Silicon Valley Bank and First Republic Bank. The Biden administration also sought to broker deals with foreign firms to invest or acquire businesses in the United States—encouraging Korean shipbuilding companies to buy American shipyards and Scandinavian energy firms to build offshore wind farms. It also repeatedly attempted to broker relationships between asset managers and administration policy objectives through initiatives such as the Partnership for Global Infrastructure. These actions, pursued by the Biden administration for strategic goals do represent the government attempting to redirect private capital allocation towards key sectors but fall far short of the Trump administration’s pursuit of company-specific investments in would-be national champions.

Although sometimes necessary in acute economic crises or to promote key sectors, government-led dealmaking at the level of individual firms, particularly by senior political officials, could deprive parties in a transaction of their due process rights. Free market capitalists would argue any interference in the decision-making between market participants on issues such as price or strategic direction will lead to a reduction in market efficiency, the sacrosanct feature of markets that allows for price setting and resource allocation.

Before depriving life, liberty, or (crucially) property, the government has a constitutional obligation to provide the due process of law. But there is no due process when the president of the United States calls a CEO and says, “Let’s make a deal,” or “I’ve got an idea for you.” Even when all parties in a transaction consent, the significant powers of the government in this new system raise the question of whether firms can realistically decline the government’s suggestions.

Rentier

The U.S. government has started extracting economic rent, that is, payments for the right to participate in the American economy, to achieve fiscal policy objectives. It has also introduced expectations of public upside participation in exchange for government support.

So far, semiconductor firms Nvidia and AMD have agreed to provide 15 percent of their profits from the sale of advanced chips into China in exchange for lifted export controls. The H1-B program now requires a $100,000 cash payment to obtain a visa. The MP Materials deal includes a profit-sharing arrangement for the government. Between states, the White House has extracted foreign direct investment from Japan and South Korea in exchange for tariff rate reductions.

The U.S. government has previously tolled individual companies’ access to markets or subsidies. Under the implementation of both the Bipartisan Infrastructure Law and the Inflation Reduction Act, recipient firms had to comply with labor, sourcing, and wage requirements to gain access to subsidy regimes designed to accelerate their growth. The Trump administration also initially practiced rentier behavior by attempting to charge for the U.S. market through tariffs. The positive political feedback loop created by policies that generated cash then led to a proliferation of efforts to seek payments from specific companies in exchange for access, approval, goods, or services.

Those attempts to create “assets” or cash flows for the American people—or to capture specific companies’ profits in the form of dividend or direct cash payments—all reflect the mounting pressure on the U.S. government to improve its fiscal position, without increasing taxes on individuals.

Working from basic constitutional principles, the first question is whether the government’s rentier behavior constitutes a tax by another name, thereby violating the separation of powers. Under the Constitution’s Taxing and Spending Clause, only Congress can “lay and collect Taxes, Duties, Imposts and Excises,” and all such taxes must be applied uniformly. On the other hand, if rentier conduct is not a tax, but rather a special exaction tied to regulatory benefit, it could risk breaching the Takings Clause of the Constitution, which prohibits the government from taking private property for public use without providing “just compensation.” More generally, when the state compels a company to surrender cash, equity, or control as a condition of access or approval, absent clear congressional authorization, such conduct could violate due process.

Thug

American state capitalism, like all forms of state intervention, can go wrong when abused, creating the opportunity for individual political gain or personal enrichment. Without proper guardrails, the U.S. government risks destroying the confidence of businesses and investors. As economists Daron Acemoglu and James Robsinon famously noted in their book, Why Nations Fail, a nation’s long-term prosperity depends on whether its political and economic institutions are inclusive or extractive. If American state capitalism fails to follow the rule of law, it risks causing the nation to fail, as it dims the vibrancy of the American economy. Opportunities to moderate the executive’s behavior abound, but they rely on long-standing constitutional checks and balances.

To some extent, there is a risk this type of thug-like behavior is already occurring. Allegations have been made that the removal of Jimmy Kimmel’s show from the air was a merger condition, conditioning private capital allocation on the silencing of a prominent government critic. Media reports have cited President Trump’s attempts to chill business for law firms deemed unfriendly, including through the suspension of security clearances. Pay-to-play allegations have also been made against Trump administration officials involving the sale of advanced chips to the United Arab Emirates. American state capitalism’s unique features may be necessary evolutions in how the U.S. government safeguards national and economic security going forward, but real or perceived abuses of power eat away at citizens’ faith in democracy, diminish the instinct for innovation and creativity, and ultimately risk undermining markets.

Recommendations: Institutionalizing American State Capitalism

American state capitalism’s defining feature is the government’s desire to take a minority stake in successful or promising companies of national significance—and then exercise a wide variety of influence and control over a company’s decisions to achieve policy objectives. However, if the U.S. government’s objectives are to create jobs through investment or dealmaking, promote national security and supply chain resilience, and build true public assets, it needs institutional architecture that asks and answers three questions prior to an investment decision: Will this investment disincentivize competition, innovation, and investment in this sector? What is the exit strategy for the taxpayer? And how can it avoid both corruption and picking a loser?

Building an institution capable of answering those questions should follow the same policy path as all new government action: first, the executive branch needs to ask Congress for funding and permission for the necessary powers to intervene in the economy in this manner. Agencies that wish to invest in companies via a wider array of financial instruments, broker deals, or impose novel forms of taxation to achieve government policy goals should formally request the authority and flexibility to do so. This is how American democracy works. The Trump administration’s recent proposal to reauthorize the U.S. International Development Finance Corporation and create an equity revolving fund is a good example of this type of effort. It is also the responsibility of Congress to consider and act on those requests in a timely manner, as congressional gridlock can force the executive branch to act in the absence of guidance.

After congressional authorization, a single institution should be established to fairly and consistently answer the complex diligence, policy, and legal questions the government needs to resolve prior to investing, brokering, or extracting rent from a specific company. Rather than building this capability at multiple different agencies and putting those awesome powers in the hands of multiple cabinet secretaries who could contradict each other, a long-term solution could be found in a centralized, publicly owned corporation that acts as a U.S. Strategic Investment Fund (as contemplated by both the Biden and the Trump administrations).

This type of independent entity could have an investment committee composed of financial professionals who have adequate resources to conduct proper diligence, evaluate investments, and seek appropriate counsel on the risks of firm-specific interventions. This entity would have the right skills to plan an exit strategy for the taxpayer. And, if designed with an independent board that has the powers to coordinate (but not direct) specific investments with political leaders, this fund would help keep the state from acting as a thug. Building a sophisticated state bureaucracy capable of executing even basic financial transactions will be hard—and ensuring it is insulated from political pressure and corruption even harder—but as the defining features of American state capitalism crystalize, now is also a generational opportunity to do things right from the start.

Conclusion

The Trump administration’s firm-level interventions have already altered the DNA of American economic governance. By normalizing the state’s role as investor, broker, and rentier, the administration has expanded the boundaries of acceptable behavior in a way that will likely grow far beyond just the Departments of Commerce, Defense, and Energy. The U.S. government operates as a series of balkanized fiefdoms, where agencies observe and imitate each other’s experiments and creative interpretations of the law to increase their reach. As once-historic redlines on the use of public funds blur, other departments are likely to follow suit, acting as investors, brokers, and rentiers within their own domains. Without legal boundaries, this new model of ad hoc policymaking will replicate across the government with poor results.

Of course, some rebalancing of power between markets and the state is both warranted and needed. Strategic intervention can help restore competitiveness, strengthen critical supply chains, and counter foreign industrial policy, particularly by nonmarket adversaries. As the work of Michael Pettis and others has shown, the past two decades have seen various versions of state capitalism flourish in many of the United States’ major competitors, most notably China. Such policies have supported investment and competitiveness in key foreign sectors while repressing consumption. The result has been exceptionally high domestic savings rates exported to the United States, which, though benefiting from the “exorbitant privilege” of cheap borrowing and foreign capital inflows, has also suffered declining domestic U.S. investment. The U.S. private sector has effectively acted as a counterweight to foreign industrial policy rather than as an asset the government can mobilize for the benefit of its own citizens.

American state capitalism could therefore be necessary in a world where nations increasingly compete through economic and technological means. It could also be needed to break the cycle of capital concentration that, through markets, has rendered the American economy less competitive and dynamic over the past half-century. Yet the foundation of American prosperity rests on the stability of its democratic institutions and on an ironclad commitment to the rule of law, not of men. Without legal guardrails and institutional capacity, the same tools that make the state a more capable economic actor can also make it a more corrupt and coercive one.

Unfortunately, in recent months concern has grown that those risks are not merely hypothetical, and that senior officials and their families could already be enriching themselves. In some instances, media outlets have reported allegations that organizations such as World Liberty Financial, owned by the Trump family, have directly profited from quid pro quo executed via the new instruments of American state capitalism. Even isolated cases of perceived self-dealing can be deeply corrosive: when public power and private gain appear to blur, confidence in both markets and democratic institutions erodes.

The future of American state capitalism therefore depends on institutionalization. If the United States wishes to wield the tools of an activist state, it needs to do so within the law by authorizing new financial instruments through Congress, empowering a competent bureaucracy to manage them and subjecting interventions to transparent cost-benefit review. Without those reforms, the line between a confident state and a predatory one will blur, and the world’s most dynamic capitalist economy will risk becoming the world’s most powerful thug.