December is always the time for looking back on the year’s most consequential developments, and 2025 has—for better or worse—given Capitolism plenty to choose from. With a second Trump term on tap and Republicans taking over Congress too, big tax, trade, and regulatory policy changes were always in the cards for this year, but their size, scope, speed, and implementation were undeniably shocking. Readers might assume that, if forced to choose which U.S. policy shift was the year’s most important, I’d quickly blurt out “tariffs” (before collapsing into a quivering heap), and—given the radical changes Trump has unilaterally and chaotically implemented in 2025—there are certainly good reasons for that choice.
Yet there’s another, less-discussed policy change that could very well be more consequential over the long term—and one that, unlike tariffs, represents a truly radical break from how the United States has done business for a century: the Trump administration’s repeated efforts to give Uncle Sam a direct and permanent financial stake in numerous private, commercial companies. Capitolism has devoted two editions to Trump’s embrace of this “state corporatism,” but each focused on a single transaction—first, U.S. Steel and then Intel—and mainly addressed the firm-specific issues involved. I have not, on the other hand, reviewed the overall trend, which troubles me greatly and, unfortunately, has only accelerated since I wrote those two columns over the summer.
As we’ll discuss today, it may be these moves—not Trump’s tariffs or ICE’s deportation raids or DOGE or the “One Big Beautiful Bill” or anything else—that prove to be 2025’s most important, and ignominious, legacy.
Before we get to that, however, a quick note about what we should even call this stuff. A lot of people have adopted “state capitalism,” largely because that’s been the shorthand for China’s similar (and admittedly deeper) fusing of the state and industry. But this term has always bugged me because what China has done—and what the Trump administration is now doing—isn’t “capitalism” in any reasonable sense of the term. As various official definitions make clear, actual capitalism is an economic system in which private individuals own the means of production to generate profits for themselves, their employees, and their shareholders, with markets generally setting prices and allocating scarce resources and with government acting as a neutral and independent regulator. Trump’s moves are decidedly not that system—government isn’t on the outside looking in; it’s officially on the inside pushing out.
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As [Tad] DeHaven detailed last week and as I explained in August with respect to the Intel deal, the federal government taking an active and ongoing stake in a private, commercial firm raises serious problems that are mostly lacking from other interventionist economic policies like tariffs or subsidies—and, of course, entirely lacking from open, neutral, lightly-regulated private capital markets.
Recent headlines, unfortunately, show that these problems are already popping up. In August, for example, I discussed how government investment in or control of a company could undermine its long-term viability by pushing the firm to undertake transactions and investments for political, not commercial reasons. Shortly thereafter, U.S. Steel reversed its decision to mothball an ancient, inefficient blast furnace in Granite City, Illinois, as part of parent company Nippon Steel’s efforts to modernize U.S.-based facilities. A few calls from the golden share-wielding Trump administration, it appears, had pushed U.S. Steel to instead restart the decrepit plant, regardless of the economic (or environmental) implications. That’s surely good news for the Granite City plant, but it’s surely bad news for U.S. Steel and its notoriously lagging innovation and productivity.
Another emerging problem is that state corporatism will harm other U.S. companies that either compete against or need to do business with state-backed firms. As the Wall Street Journal’s Greg Ip reports, for example, businesses getting into bed with the Trump administration are able to “elicit better treatment—in their ability to sell to China, the tariffs they pay, how they are regulated, and what mergers are allowed”—than what their U.S. competitors get. Companies are also looking to do business with government champions, not because they make the best products but to get on Trump’s good side or to avoid his wrath. Following news of Nvidia’s surprising $5 billion deal to co-develop AI chips with state-backed Intel, for example, many analysts speculated that deal—chump change for the $4 trillion Nvidia but a move that made Intel’s stock pop—was primarily intended “to curry political favor with the president.” Shortly before and after the deal, Nvidia got Trump’s permission to sell AI chips to China (after giving Trump a cut, of course).
The broader risk of capital misallocation—private investment chasing government champions instead of solid performers or innovative startups—is also becoming apparent. Share prices for Intel, MP Materials, Lithium Americas, and Trilogy Metals have zoomed higher after the government announced its equity stakes, but they did so not because the companies’ fundamentals improved but simply because they had Uncle Sam’s backing. Meanwhile, Bloomberg reports, investors have started “trying to think like Trump to find the next targets of the US government’s ownership stakes in public companies, which tend to see massive gains following the investment.” That’s bad enough as it is, but the shift in U.S. investment strategy goes beyond just a few speculative bets.
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Target companies’ share prices will benefit, of course, but they do so by sucking up finite capital that could have gone to productive, well-performing alternatives—including in the same industries. It’s textbook capital misallocation and, as we discussed regarding the costs of China’s industrial policies, it means lower productivity and growth—and a weaker U.S. economy in the long term.
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Equally damning is the lack of a sound justification for any of these moves, even from supporters and especially given the availability of both market-based and nonmarket policy alternatives that have a long history of use and success in the United States. It’s widely understood, for example, that the biggest obstacles to domestic mining and refining of “rare earth” products aren’t a lack of government investment but instead onerous regulations and permitting timelines that both Republicans and Democrats have targeted for reform. As we’ve discussed repeatedly, moreover, there are a wide range of tax, trade, labor/immigration, education, and regulatory reforms that the U.S. government could implement to boost commercial firms producing semiconductors, minerals, metals, and other “critical” goods—no government shareholding needed.
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Now, we face a troubling future across multiple fronts. The problems and distortions associated with state corporatism—cronyism, favoritism, inefficiency, capital misallocation, etc.—will proliferate, often without notice. State champions will double down on their relationship with the government and the short-term advantage it provides. (Some, in fact, have already started.) There’s also a clear risk that more U.S. firms join with the government out of fear or necessity, and that future administrations will use this year’s precedents to implement their own versions of state corporatism—distorting more of the American economy along the way.
Even without that expansion, however, there’s the obvious problem of how to unwind what Trump has already put in place—especially as corporations shift to treat this aberrational period as the new normal. Lawsuits seem unlikely: The people with legal standing to challenge the new tie-ups in court—shareholders and managers of target firms—have no clear financial or political motivation to do so, and the legal basis for any such suit would be murky, at best. A future president could undo the deals, but that would require giving up executive power—something, unfortunately, that few modern presidents have entertained. That leaves reform in the hands of Congress, which could pass a law forcing divestiture or establishing guardrails on government involvement, but partisan acrimony and gridlock make that another longshot.
This year, in other words, could stick with us for a very long time.
Jack Nicastro reports that, even on their own terms, Trump’s trade ‘policies’ aren’t working. A slice:
Likewise, as countries get richer, their labor markets transition from agriculture to industry and then to the service sector. Declining manufacturing employment as a share of overall employment is a sign that Americans are richer, not poorer, than our ancestors.
Trump’s targeted metrics are meaningless as proxies of prosperity. But the fact that his protectionist policies are failing to achieve their stated goals shows just how flawed they—and their justifications—always were.
Mr. Trump has spent the year alternating between blaming his predecessor for the economy’s performance and insisting that the situation is better than people realize. Mr. Biden tried the same approach, and we know how that worked out. Most Americans don’t like being told that they’re delusional or stupid or that their children should learn to make do with fewer dolls on Christmas. They understand that regardless of what Mr. Trump inherited, his policies are contributing to current conditions. They don’t like what they see, and what they see is higher prices for food, cars and energy. They also see a president clinging to his tariff initiatives like a toddler clings to a security blanket.
“Prices for everyday staples haven’t fallen during Trump’s second term,” the Journal reported, “and some, such as for coffee and beef, have risen notably, underscoring the pressure many households continue to feel.” Mortgage rates have come down, but many people still can’t purchase a house. Before the pandemic, families earning $75,000 a year could afford to buy about half of all listings. As of March, those households could afford only 21% of listings, according to the National Association of Realtors.
Increasing levies on imports has done more harm than good for America and its trading partners. It has raised sticker prices and the cost of operating a business. It has reduced international trade, which leads to more options for consumers at lower prices. Mr. Trump touts tariff revenue, which has increased, but he’s using that revenue to bail out farmers and other Americans who have been hurt by his trade protectionism. Remember, tariffs were sold as a way to increase domestic manufacturing jobs, not revenue. Last month’s jobs report showed a decline in manufacturing jobs.
There is no feigning ignorance for the consequences that inevitably follow these caps. In New York, it’s estimated there are 50,000 empty apartments across the city thanks to rent control policies. In Scotland, the Scottish National Party capped rent hikes at 3 percent in 2022 – only to report the highest rent increases on record this fall. Meanwhile, in Argentina, President Javier Milei abolished rent controls in December 2023. Properties flooded the market, and rents have fallen by 40 percent on average. That’s something American cities would be wise to replicate.
