Trump's state capitalism reaches a high-water mark

The practice of the US government taking equity ownership in private sector corporations, known as state capitalism,[1] has occurred on and off over the years, usually in emergencies. For example, the global financial crisis of 2008–10 compelled the federal government to take equity stakes in General Motors, Chrysler, and American International Group to avert their insolvency and stabilize the economy.[2]

Those stakes were highly controversial, especially among Republicans, and they were sold off when the crisis receded.

Under President Donald Trump, however, state capitalism has reached a high-water mark in the face of fiscal pressures, budget priorities, and Republican past objections.

The Trump administration's other industrial policies—including tariffs, import quotas, and tax credits—have offered benefits to numerous firms in favored industries and economic sectors. State capitalism, on the other hand, confers its benefits on a single targeted firm.

Prior to Trump's second term in the White House, state capitalism was rare in the US economy, even though other aspects of industrial policy were relatively common, no matter whether Republicans or Democrats occupied the White House and Congress.

The auto sector rescue of 2008 was preceded by earlier bailouts of the entire railway system, including Penn Central (1970),[3] Lockheed Aircraft (1971), and Chrysler (1980). These earlier bailouts entailed loan guarantees, not equity stakes, and were short-term rescue operations, not the durable state capitalism envisaged by Trump.

Objections to these and other episodes of state intervention in private enterprises focused on the ideology against socialism. Another objection was that "playing favorites" in the economy could lead to corruption. The sentiment was particularly strong in the Republican Party before the Trump revolution. Presidents and members of Congress, alongside mainstream economists, argued that the market could do a better job than politicians at identifying winners among competing firms.

Trump's Agenda

The economic landscape abruptly shifted with Trump's first election in 2016 and, as Cullen S. Hendrix documents, more so with his second election in 2024. When first elected, Trump was more disposed to industrial policy than his postwar predecessors. Tariffs to protect favored industries were his favorite tool. At the same time, Chinese technological achievements, huge industrial subsidies, and extensive state capitalism alarmed Washington. According to a Stanford analysis, China had over 362,000 enterprises that were 100 percent state owned, and many more that were partially owned, collectively controlling about two-thirds of industrial assets.

These events fueled widespread bipartisan fears of China overtaking America as an industrial powerhouse. With his return to the White House in 2025, Trump turned to state capitalism, illustrating the change in attitudes resulting from Chinese competition.

Trump was not alone among advanced economies in resurrecting state capitalism. According to the Global Trade Alert, the United States, United Kingdom, Canada, Australia, and the European Union together announced 69 equity deals in the first seven months of 2026, up from 51 in the same window of 2025 and 12 in 2023.[4] The United States accounted for 21 deals in the first 7 months of 2026.

Trump's agenda for state capitalism took two forms. First, he established outright equity ownership stakes, summarized in the table below. One unusual maneuver was Trump's demand that Nippon Steel give the US government a "golden share" as a condition for acquiring U.S. Steel in 2025. As the table shows, US equity stakes are concentrated in firms making semiconductors, critical minerals, and quantum computing. The total between June 2025 and August 2026 comes to $24.5 billion.

An additional and more novel—and perhaps questionable—rationale in the annals of state capitalism was epitomized by Trump's demand that select foreign countries invest in America as a condition of reaching favorable trade agreements or maintaining cordial diplomatic relations. Gregory Auclair and Adnan Mazarei summarize the forced foreign direct investment (FDI) pledges, though many of them are aspirational. While the total cited by the administration comes to an impressive $5 trillion, several pledges are spread over 10 years, and some have no timeframe. Annualizing them over their stated horizons (and assuming 10 years where none is given) yields roughly $880 billion per year.

Because the pledges also include imports and military purchases, and many are nonbinding and large relative to partners' resources, annual investment of this kind will likely not exceed $300 billion because Middle East and Gulf country investments are doubtful in the wake of the Iran war. In fact, total US inward FDI in 2025 was just $232 billion, and it seems improbable that forced FDI will double that figure.

The most concrete pledges were extracted from Japan and Korea. In September 2025, Japan agreed to invest $550 billion in US projects, subject to US government approval, in exchange for a 15 percent cap on US tariffs. The approval process is overseen by Trump's commerce secretary, Howard Lutnick. In November 2025, South Korea agreed to invest $350 billion in US projects, again subject to approval, likewise for a 15 percent cap on US tariffs. On September 30 this year, the administration announced that South Korea would invest up to $200 billion in power projects in the United States, including a power generation facility in Texas, and eight nuclear power plants and a liquefied natural gas (LNG) facility in Alaska. The announcements were a classic example of the politicization of industrial policy, since they were timed to help struggling Republican senate candidacies in those two states. Of the Korean total, some $150 billion is committed to shipbuilding, $22 billion is committed to a gas-fired power plant, and possible investment in an Alaskan LNG plant is in contention.

While large-scale state capitalism is relatively new to American experience, it would be wrong to attribute Trump's initiatives with a major transformation of the US economy. Total investment outlays tabulated in the table come to $24.5 billion. At best, forced FDI may amount to $300 billion annually and could be much less. Evidently, forced FDI will dwarf federal commitments, if the promised sums are realized. State capitalism funded by the federal government, together with ventures financed by foreign countries, might at most amount to $330 billion annually.

By contrast, according to Goldman Sachs, US AI investment in AI alone in 2026 is forecast to reach $765 billion, while total US business investment in fixed assets is forecast at an annual rate of $4.85 trillion.

Moreover, if Chinese state capitalism is credited with the country's technological achievements—a doubtful proposition—it would be a major error to imagine that the recent US embrace will meaningfully narrow China's lead over the next decade. The scope of China's state capitalism, covering some two-thirds of industrial assets, exceeds by several orders of magnitude what Trump has launched.

On the other hand, as Tianlei Huang and Nicolas Véron have shown, more than half of the top 100 Chinese companies are either private or mixed ownership, and these tend to be the most dynamic firms. US state capitalism is not a promising response to China's industrial achievements.

Given the size of US fiscal deficits and federal debt, the United States lacks the financial capacity for a major escalation of state capitalism. Nor is it clear that the political disposition exist. Both political parties face a severe fiscal challenge to maintain Social Security distributions at current levels once "trust funds" are depleted at the end of 2032. Replenishing military equipment after the Iran war is an immediate demand.

Meanwhile, as Auclair and Mazarei have questioned, it remains to be seen whether the Middle Eastern Gulf states, facing the cost of recovery from the Iran war, will carry through on their forced FDI promises once Trump leaves the White House in 2029.

Whether Democrats sweep the White House and the Congress in the 2026 and 2028 elections or Republicans retain control, Trump's second term will represent a high-water mark for US state capitalism that is unlikely to be exceeded once Trump leaves office.

Notes

1. This definition excludes instances where the federal government exercises substantial influence over private corporations, particularly those in the military field such as Nvidia and Space X, but does not hold equity stakes.

2. These episodes are documented in US Explores State Capitalism(2026, Center for European Policy Analysis).

3. However, the 1970 railway bailout did create Amtrak, an example of state capitalism.

4. The Global Trade Alert report misleadingly cites a very small number for new equity stakes by China and India combined, just 18 in the first seven months of 2026. This figure ignores the thousands of existing state-owned enterprises, particularly in China.