Is the Trump administration trying to reshape American capitalism? Recent moves by Washington, such as taking a 10% share of semiconductor maker Intel Corp., point to a shift in that direction. For decades, Washington has supported free-market capitalism. Today, the government appears to be supporting a new direction – state-directed capitalism.
I find this reversal striking. My previous research suggests capitalism isn’t in retreat but is rather evolving.
In what direction is the Trump administration pushing it?
While many people bandy around the term “capitalism,” it actually comes in many different forms. The most basic definition of capitalism is when the means of production – such as factories, farms and offices – are owned by private individuals.
Capitalism is driven by profit.
Who gets the profits and who controls the means of production determine the specific forms of capitalism. I want to focus on three of the most important forms.
Free-market capitalism, also called laissez-faire capitalism, is when the government takes a hands-off approach. The U.S. after the Civil War is a good example of free-market capitalism. During the late 1800s, the federal government imposed few regulations on businesses.
State-guided capitalism is when the government chooses industries or companies to support. Favored sectors are given money and face looser regulations. China today is an example of state-guided capitalism, where the state provides support for industries such as shipbuilding, steel and artificial intelligence.
Oligarchic capitalism is when a very small part of the population owns key industries and controls the economy. Russia today is an example of this type of capitalism.
Each form of capitalism has its strengths and weaknesses. For example, free-market capitalism provides the most incentives to grow the economy, but the lack of rules often leads businesses to run roughshod over consumers.
State-guided capitalism can dramatically boost the output of favored industries. However, if the government invests in the wrong industries, huge amounts of money can be wasted propping up dying firms.
Oligarchic capitalism can rapidly invest in new areas and shift resources, but the profits enrich only a tiny elite.
The U.S. currently appears to be operating under a hybrid model of capitalism, blending free-market principles with elements of state capitalism.
An example is the Trump administration’s decision to take a 10% stake in Intel. Congress passed the multibillion-dollar CHIPS and Science Act in 2022 to bolster U.S. computer chipmakers. Intel is slated to receive $11.1 billion in grants from the program and other government funding. The administration has converted that public support into a 10% ownership of the semiconductor maker.
Intel isn’t alone. The government has recently become a shareholder in other companies it views as strategically important. The trend seems likely to continue. In July, the Department of Defense agreed to buy $400 million of convertible preferred stock in MP Materials Corp. MP Materials is the only U.S. rare-earth minerals mine with integrated production capacity. The company said the Department of Defense would be positioned to become its largest shareholder.
The government is also requiring a share of revenue from large computer chip manufacturers. Nvidia Corp. and Advanced Micro Devices Inc. will have to remit 15% of revenue from certain chip sales to China as a condition for export licenses.
Why is the change important?
MP Materials and Intel could serve as pilot models for further strategic intervention. However, the U.S. government spends trillions each year, and the amounts invested in American industries and companies represent only a small percentage of total spending.
While the CHIPS and Science Act was passed in 2022 under the Biden administration, the implementation relied on traditional tools of industrial policy such as grants, tax credits and milestone-based funding. In contrast, the Trump administration has converted these grants into equity arrangements, with officials stating the government should get a return on its investment.
This shift from an incentive-based approach represents one of the most fascinating experiments in modern American capitalism. The real question is what happens if – or when – this strategy expands. The government could become more involved in energy, biotech and AI, or any place where markets show signs of lagging or supply chains are geopolitically fragile.
The U.S. isn’t rejecting capitalism but recalibrating its boundaries. The next few years will show exactly how Washington’s interventions will reshape U.S. capitalism.
H. Sami Karaca is a professor of business analytics at the Questrom School of Business at Boston University. Distributed by The Associated Press and The Conversation.
