why Trump opened the door to ‘state-run capitalism’

When Donald Trump burst on to the American political scene in 2015 he declared himself a free-markets aficionado — with a catch. 

“I’m a free trader 100 per cent,” he told Republicans as he vied for the party’s nomination for the presidency. “But we need smart people making the deals. And we don’t have smart people making the deals.”

A decade later, seven months into his second term, Trump has taken on that dealmaking role for himself, adopting a transactional approach to the presidency that has upended the US government’s treatment of private enterprise and shattered the Republican party’s free-market philosophy. 

On Friday, the president announced his latest deal: the US government would take a 10 per cent stake in struggling chipmaker Intel, using previously agreed federal grants to fund an $8.9bn equity investment. 

The move cuts directly across Republican orthodoxy, which touts the benefits of free-market capitalism and broadly objects to state interventions into corporate America.

“For US policy, its pretty darn bonkers,” said Scott Lincicome, vice-president of general economics at the libertarian Cato Institute think-tank.

“The only time we’ve done this is during war or during the [2007-09] Great Recession, when basically the claim was it’s either this or economic collapse.”

“It opens the door to a sort of state-run capitalism that we conservatives have typically spoken against,” said Bob Inglis, a former US congressman from South Carolina and self-declared Reagan Republican. “But these are not typical times, and this is not a conservative Republican Party.”

Trump has vehemently rejected such criticism, saying Washington paid nothing for the stake in Intel since the deal was funded through unallocated grants.

The troubled semiconductor company, which had been for decades a Silicon Valley tech champion, has posted six quarters in a row of net losses, as its chip manufacturing business has sputtered.

“Why are “stupid” people unhappy with that? I will make deals like that for our Country all day long,” Trump said on Truth Social.

Intel’s chief executive Lip-Bu Tan also hailed the deal in a post on X, which included a picture of himself and commerce secretary Howard Lutnick beaming broadly.

Tan said: “I’m excited about the work ahead to ensure the most advanced silicon technology and computing products of the future are designed and built right here in the USA.”

The Intel deal was just the latest in a series of interventionist moves by the president more akin to 1960s European state capitalism than the free market orthodoxy that has for decades underpinned the Republican party.

In June, Trump greenlit US Steel’s takeover by Japan’s Nippon Steel in exchange for a so-called “golden share” for the government. Last month, the Pentagon became the largest shareholder in MP Materials, operator of the US’s only active rare earths mine. 

More recently, the president said the US would allow Nvidia and AMD to sell their chips to China in exchange for a 15 per cent cut of the revenues on those deals.

The White House noted that the Trump administration was simultaneously pushing free-market policies — such as deregulation and tax cuts — “to restore America as the world’s most dynamic economy”.

The interventions into sectors such as chips and steel were designed to counteract “America Last policies to finally safeguard our national and economic security”, it added.

The more interventionist approach has drawn praise from some of Trump’s former critics as well as tech executives, who have increasingly adapted to his way of doing business to avoid becoming targets of the president.

Mark Cuban, the billionaire investor and a supporter of Kamala Harris in the 2024 presidential race, said Trump’s decision to push Nvidia and AMD to pay a portion of their China-related revenues to the state was a good redistributive move that should have been supported by Democrats. 

“This is a ‘billionaire’s tax’ structured as a royalty or sales tax on semiconductors from the most valuable company in the world, sold to China,” Cuban said on X. 

“Will this make up for the explosion of the deficits we face? Not as it stands now. Not close. But give him credit for knowing how those CEOs approach problems and opportunities, and using his leverage to generate tax revenues,” Cuban added. “POTUS is more progressive when it comes to taxation than anyone in the progressive wing of the Dems has ever been.”

The president has made clear that the insertion of the US government into private sector affairs is far from over. “I hope I’m going to have many more cases like it,” Trump said on Monday, referring to the Intel pact.

Experts caution that the president is not pursuing an ideological shift, rather being guided by decades of experience pursuing deals as a Manhattan real estate mogul, treating interactions with the corporate world as an opportunity for a quid pro quo arrangement.

“My read on it is its pretty unthoughtful, it’s pretty unstrategic,” said Michael Strain, director of economic policy studies at the right-leaning American Enterprise Institute. 

“What we’re seeing is less strategic pivot towards state capitalism and more the president inappropriately shaking down private companies because he thinks that makes him a better dealmaker.”

Carlo Invernizzi Accetti, a political science professor at City College of New York, added that “[Trump’s] willingness to intervene in markets, deploying state power to produce specific outcomes, might be reminiscent of French ‘dirigisme’ during the 1950s and 60s, if it wasn’t so nakedly self-interested and clientelistic.”

The approach has drawn praise from unlikely quarters for the Republican president, as well as opprobrium from traditional allies.

Bernie Sanders, the leftwing US senator, lauded Trump’s Intel deal, which mirrored a proposal he had made himself for the government to receive equity in return for subsidies granted under the 2022 Chips Act.

“I am glad the Trump administration is in agreement with the amendment I offered three years ago,” said Sanders in a statement.

“If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”

On Wall Street, however, the reception has been far cooler among Republicans’ traditional allies in the corporate world.

“Three directors have called me in the last week or so, all who have been pretty supportive of Trump, very alarmed by this trend,” said a senior adviser to some of America’s largest companies and their chief executives.

“Their greatest concern is that it will lead to the distortion of governmental policy to favour companies that the government has a financial interest in.”

Trump has vowed that the government’s involvement in Intel will be passive, with no board representation or other governance rights. But analysts warn that this approach is unlikely to hold.

“There’s no way that the US government becomes the largest shareholder in an ailing national champion chip company . . . and doesn’t pick up the phone when it starts disliking what that chip company is doing,” said Lincicome.

Ultimately, he said, whatever the government’s motivations, and whatever its intentions, its pivot towards interventionism will be hard to row back.

“This stuff — tariffs, subsidies, equity stakes, you name it — it’s really hard to dislodge once it becomes the policy.”