What happens when your shareholder is Uncle Sam? It’s 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’s lithium, which is essential for battery production, is processed in China. The U.S. government last year extended a $2.3 billion loan to Lithium Americas, which is building a lithium mine and processing plant. Now the Trump administration wants to convert that loan into an equity stake 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. The U.S. government is taking an $11 billion stake in Intel, described as a “passive ownership,” which means it agrees to vote with the company’s 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’s economy operates.
By contrast, Japan-based Nippon Steel agreed in June to grant a “golden share” to the U.S. government 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.
“This could end up hurting the very companies and sectors you’re trying to help,” 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’s 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. “If this becomes [a] permanent policy, it will represent the most significant restructuring of American capitalism since the New Deal,” says H. Sami Karaca, a professor at Boston University’s Questrom School of Business, via email.
Government-owned enterprises are a hallmark of socialist-oriented economies, including China’s. 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 – does it matter?
The Trump administration argues that taking stakes in mineral projects – the lithium deal comes after the Defense Department took a stake in MP Materials, a rare-earth processor – enables the U.S. to break China’s stranglehold on supply chains. Speaking two weeks ago on Fox Business, Kevin Hassett, who heads Mr. Trump’s National Economic Council, said it wasn’t “a socialist policy. The government isn’t going in and trying to take over these companies the way a socialist would. … We’re just making sure our national security is preserved with a small equity stake.”
Analysts say the key difference with how past administrations pursued national security goals in domestic industries is Mr. Trump’s 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, “The Drift: Stopping America’s Slide To Socialism,” that criticized the Biden administration for, among other policies, expanding the government. He told a Washington Post columnist that “profit-maximizing corporations are like a key linchpin of capitalism. And it’s profit maximization that makes things efficient, drives productivity higher.”
At a recent National Conservatism Conference in Washington, speakers praised the Trump administration’s 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, a former Trump administration official in the Department of Homeland Security, said the threat from China – which he said has a “kill switch” in rare-earth exports – had forced a rethink of the government’s role in the economy. The investment in MP Materials was a prime example, he told a panel talk on industrial policy. “That was not business as usual,” he said. “It was the Pentagon breaking with old trade orthodoxy and saying national security comes first.”
On the government’s 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. “It’s the next logical step in the industry-policy slide,” he says.
President Biden’s industrial policy subsidized critical industries with tax credits, loans, and grants. But it largely left the market to pick winners, says Professor Karaca. What’s different now is that the Trump administration is “practicing selective state capitalism” by investing in and co-owning “national champions.”
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.
“What we’re witnessing is American capitalism’s institutional flexibility responding to changed geopolitical realities,” 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’s 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 recently reversed a decision to close a struggling mill 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’s protectionist tariffs and trade deals that require foreign companies to build more industrial facilities in the U.S.
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.)
“The broad outlines have become a consensus,” Professor Paul says.
Still, he believes that the equity stakes that the Trump administration has taken may be less enduring. “On the Republican side, they’re not going for that over the long run,” 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 “green’’ energy company. Mike Pompeo, then a Republican lawmaker from Kansas, told a House hearing that China had flooded the market with cheaper solar panels that Solyndra couldn’t match.
“So the globe succeeded in reducing the price, but the American taxpayers lost half a billion dollars by us trying to pick a particular business,” he said.
