The left and the right increasingly agree that the government should embrace stronger economic intervention and industrial policy. Both sides are abandoning the principles—and the open and dynamic form of free-market capitalism—that have made the United States the world’s most prosperous country and undisputed technological leader.

The most troubling development is the Trump administration’s rapid embrace of “state corporatism” across a range of companies and industries. As of writing, Table 1 shows that the federal government has announced or finalized deals to acquire ownership stakes in more than 30 companies. Washington is now, or would become, a major shareholder—in some cases the largest—in these companies. The government has also wrested a “golden share” in U.S. Steel, giving the state control over an array of corporate decisions and transactions, and has demanded a significant cut of Nvidia’s and other US semiconductor firms’ sales in China in exchange for lifting security-based export controls.

Trump administration officials have promised more of these moves in the months ahead. As evidenced in the near bailout of bankrupt Spirit Airlines and the announced portfolio of quantum computing companies, they see few, if any, hard limits on their ability to engage in such transactions, which the president views as a great success.

Washington’s growing portfolio

The federal government’s state corporatism is unprecedented. Washington has long supported domestic firms with tariffs, subsidies, procurement preferences, tax and regulatory favoritism, and other interventions. These measures, however, have been broad, provided at arm’s length, often authorized by law, and subject to limited government oversight. Such policies are economically unwise and raise political concerns, including favoritism of certain industries over others. But they’re fundamentally different from state corporatist policies that give the federal government an ongoing, direct, and in most cases financial interest in a single company’s day-to-day business operations, its public share price, and its ultimate success or failure—and do so under the thinnest of legal authority (if any at all).

Today’s state corporatism is also more coercive. In almost all past cases of US industrial policy, a company’s involvement with the government was voluntary—if a company’s management and shareholders failed to see a financial benefit in participating in a certain program, it could refuse (or exit). Trump’s state corporatism, on the other hand, has routinely been accompanied, at the very least, by the appearance of state coercion: Equity stakes have reportedly followed government officials’ threats to reject a foreign acquisition (U.S. Steel), to withhold already-awarded subsidies or federal contracts (Lithium Americas), to deny needed permits (Trilogy Metals), to agitate public opposition to management (Intel), or to ban the export of certain products unless the state gets its cut (Nvidia and AMD).

In the rare instances when the US government took full or partial ownership of a private firm, the arrangement occurred during an economic or foreign policy emergency—for example, a financial crisis or wartime—and was temporary, with the government’s exit planned in advance and conditioned on the achievement of certain objectives (e.g., the company returning to solvency). State corporatism, by contrast, has no such characteristics. It is not the wartime nationalization of a steel mill to make tanks or the emergency rescue of failing banks and automotive giants during a financial collapse. It’s not even the statutory creation of a quasi-private, “government-sponsored” entity. State corporatism is the repeated, open-ended, and noncrisis intervention in already-operating private firms—something that will be extremely difficult to unwind and that sets a new precedent for similar future actions.

The US government has long been a referee in the market and has even coached or sponsored certain teams. It has occasionally even served as an emergency substitute. But it has never forced its way into the game as a full-time, regular-season player—until now. And President Trump has done this repeatedly.

As the Obama administration prepared to take office amid the financial crisis, incoming White House Chief of Staff Rahm Emanuel infamously told the Wall Street Journal CEO Council in November 2008: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Sixteen years later, no crisis is needed. A president can just trot out vague language about “national security” to explain the partial nationalization of a tech giant such as Intel or the effective control of the nation’s third-largest steelmaker. The details can be fleshed out later—if they’re ever disclosed, which in many cases they have yet to be.

Some call the government’s new approach “state capitalism,” but it’s clearly not capitalism in any legitimate sense of the word. It’s not quite socialism, either. It’s the “middle way between ‘atomistic’ competition and central direction” that F. A. Hayek warned about in The Road to Serfdom:

Nothing, indeed, seems at first more plausible, or is more likely to appeal to reasonable people, than the idea that our goal must be neither the extreme decentralization of free competition nor the complete centralization of a single plan but some judicious mixture of the two methods. Yet mere common sense proves a treacherous guide in this field. Although competition can bear some admixture of regulation, it cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production.

Intervention Inhibits Economic Progress

When the conspicuous fist of state corporatism displaces the invisible hand of the market, liberty suffers, along with the dynamism, innovation, and prosperity that American capitalism has fostered. With Uncle Sam as a shareholder, numerous problems arise—problems we’ve seen repeatedly in other countries that are already materializing here too.

First, capital starts flowing for political reasons instead of commercial ones. Table 1 shows that Intel’s share price, for example, skyrocketed after the Trump administration’s August 2025 acquisition of 10 percent of the company, growing at rates that far exceeded the appreciation experienced by any other major US player benefiting from the AI boom. As of late May 2026, Intel’s market cap exceeded $620.9 billion, more than $515 billion higher than where it sat prior to the government’s investment in late August 2025. Some of these gains likely reflect legitimate internal corporate restructuring and real AI-related earnings momentum, but the company still has problems and remains well behind advanced chipmaking leader Taiwan Semiconductor Manufacturing Company (TSMC). Intel’s wild outperformance compared to the rest of the industry, despite losing money on a generally accepted accounting practices (GAAP) basis and trading at a non-GAAP price-to-earnings ratio over two and a half times as large as the industry average (216.6x to 78.67x), therefore strongly suggests that tens of billions of dollars supporting the company have been driven by politics, not capitalism, and diverted away from potentially more deserving firms.

Intel stock price outperforms industry leaders and average

This is textbook capital misallocation, and it goes beyond Intel. The share prices of the private US firms in which the government has invested have zoomed higher than broader indices after the deals were announced. In each case, the targeted companies will suck up scarce resources for months or years—resources that could have gone to other, more productive alternatives. Unrelated investments become distorted too. Bloomberg News reported in November 2025, for example, that speculators 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.” Some institutional investors now evaluate companies based in part on their “political relationship with the state.” Another investment group has already filed paperwork with the Securities and Exchange Commission to create an exchange-traded fund that mirrors the government’s balance sheet.

Companies receiving these private investment dollars will likely enjoy higher share prices and more capital, at least in the short and medium run. But they’ll do so by taking finite funds away from productive, well-performing alternatives, including in the very same industries. In the end, research shows that this kind of capital misallocation inevitably means lower productivity, weaker growth, and a smaller, less vibrant economy even if state-backed champions don’t fail—something the government might not let happen.

The second problem is that the government will dictate the routine business decisions of the firms it owns—as we’ve already seen with U.S. Steel. The Defense Production Act of 1950 and subsequent amendments authorize the president to suspend or prohibit security-related foreign investments via the interagency Committee on Foreign Investment in the United States (CFIUS). When CFIUS refused to approve Japanese steelmaker Nippon Steel’s purchase of U.S. Steel, a long-struggling firm in what is arguably the United States’ most coddled industry, it kicked the final decision to Trump, who promptly used that leverage to acquire a “golden share” in the firm in exchange for approving the deal. While the US government has no formal voting rights in U.S. Steel, the golden share gives any US president complete veto power over countless day-to-day business decisions, including relocation of the company’s headquarters, closing or idling plants, shifts in near-term investments, and even pricing strategies.

The Trump administration has already exerted its new control over the company. When U.S. Steel announced in September 2025 that it would halt operations at its decaying plant in Granite City, Illinois, which Trump visited and claimed credit for revitalizing with tariffs during his first term, Commerce Secretary Howard Lutnick called U.S. Steel’s chief executive to say that the president wouldn’t allow the plant to stop rolling steel slabs. Now, the site’s century-old, coal-fired blast furnaces—so dirty and inefficient that they were slated for demolition mere months ago—are back up and running. Similar concerns arise from U.S. Steel’s vague and suspicious promise to restart uneconomical tin mill facilities in the face of high canned goods prices, which have surged because of tariffs and the Iran war.

Third, there’s the clear threat that state corporatism will cause entrepreneurial dynamism to be slowly replaced by government favoritism and rent-seeking, from both a target firm and those seeking to curry favor with its government owner. Just recently, for example, a former Department of Energy official who reviewed potential targets in the rare-earth minerals space divulged that “the companies proactively offering up equity stakes were the least viable and most eager to secure a government financing package.” Dying Spirit Airlines, meanwhile, first approached the Trump administration about an equity-based bailout, only to see the deal collapse after a group of its bondholders balked at the administration’s demand that it give the state 90 percent of the company. On the flip side, we’ve learned that Intel’s much-ballyhooed deals with Nvidia, Elon Musk, and Apple—deals that sent its share price even higher—were driven at least in part by pressure from Secretary Lutnick and a direct request from President Trump. 

Problems are also sure to arise after government investments have been made. State-backed champions might ask their government partner to tilt the subsidy or regulatory playing field in their favor (or against their competitors). Politicians might do so without such a request, as companies’ share prices become public scoreboards for measuring the efficacy of their economic policies.

Fourth, state corporatism risks breeding even more cronyism and corruption in Washington, or at least the public perception thereof. Last year, for example, the government invested $150 million of CHIPS and Science Act funds in semiconductor start-up xLight, whose executive chairman, Pat Gelsinger, is the former Intel CEO and chief lobbyist for the very same CHIPS Act. The Pentagon’s push to acquire equity stakes in private companies is led by former executives of Capital Cerebrus Management, which invests in many of the same industries the Pentagon is targeting. New state investment in Vulcan Elements has connections to President Trump’s son, and White House Deputy Chief of Staff Stephen Miller made a mint after unloading his shares of MP Materials, which had spiked following the firm’s government tie-up. Required disclosures additionally show that, in the first quarter of 2026, President Trump made thousands of peculiar stock trades involving Intel, Nvidia, and several other “major companies that have dealings with his administration.” The odds are strong that more of these suspicious activities have occurred out of sight.

State corporatism is also accelerating Washington’s revolving door. Intel, for example, named former Trump administration official Robin Colwell as its new senior vice president of government affairs in December 2025. She’ll stay in Washington but leave her previous role as a deputy assistant to the president. So much for draining the swamp.

Finally, there is the open question of whether the federal government will extract itself from the state corporatism it has birthed. Equity stakes raise a catch-22 for the government: Realizing gains from state investments requires Washington to sell its shares, but such divestment might collapse the share prices and finances of the firms at issue—and thus undermine the original stated goal of government support. Politics also might prevent the government from admitting failure and cutting bait when target firms fail to meet the economic or geopolitical objectives the government has promised, a longstanding problem with US industrial policy generally. And, of course, the Trump administration’s actions lay the groundwork for the next US president—Republican or Democrat—to go even further, investing even more taxpayer dollars and otherwise tilting the playing field in favor of the companies and industries that he or she personally prefers. The urge might prove irresistible; thus far, the law offers no clear answers as to when or how the state will cease being so intertwined with favored firms.

The dangers of the new government shadow conglomerate that the Trump administration has created are not just rampant market distortions, lower productivity, reduced growth, and abundant cronyism. They also include the risk that the government’s balance sheet will expand under its own weight, locking the US into a top-heavy, politicized economic model that is antithetical to economic freedom and the American tradition—and more fitting to openly corrupt states in the developing world.

State corporatism is thus a serious new policy problem. It also, unfortunately, isn’t unexpected.

Intervention’s Mission Creep

Bailouts that began with the Troubled Asset Relief Program (TARP) during the financial crisis of the late 2000s laid the groundwork for the government to take equity stakes in private companies today. Through TARP, the Treasury acquired preferred stock in more than 700 financial institutions, usually with warrants or additional preferred shares, and separately took significant equity stakes in five companies, including General Motors (GM) and Chrysler. The auto bailouts were especially intrusive because the industry was not mentioned in the statute. The Treasury ultimately recovered about $47 billion of the $61 billion it invested in GM and Chrysler, writing off or realizing $14 billion in losses.

A simple accounting of financial losses captures only part of those bailouts’ costs. The federal government rewrote bankruptcy law on the fly, eroding the rule of law and longstanding precedent. It denied the spoils of competition to more prudent automakers such as Ford, Honda, and Toyota, upending the vital process of creative destruction that weeds out bad bets and rewards good ones.

Perhaps most important, as Cato Institute scholars warned at the time, these bailouts set the stage for stronger future state intervention in the economy, just as we’re seeing now. My predecessor as the director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, Dan Ikenson, made that exact point when he appeared before Congress in June 2011:

If it is considered a success, the threshold for interventions will have been lowered and Americans will have the opportunity to judge similar bailouts in the future.… Americans will be more willing to extend powers without serious objection to the executive branch that we would not extend in the absence of a perceived crisis.

During the same period, the US government began to think of itself as a public venture capitalist, throwing taxpayer dollars at unproven but politically connected firms. The $800 billion American Recovery and Reinvestment Act of 2009 (ARRA) authorized federal grants, loans, tax credits, and other supports with the goal of boosting energy innovation. The $475 million Solyndra boondoggle is undoubtedly the ARRA’s most notorious industrial policy failure. But, as I documented in 2021, numerous other projects from that period also failed or never needed taxpayer funds to begin with. It’s no surprise, then, that a 2024 study found that politically connected firms were more likely to win ARRA grants, but those firms created fewer jobs than their nonpolitically connected competitors, despite job creation being a main objective of the stimulus bill.

The ARRA was a textbook case of the perils of US industrial policy, yet some in Washington saw it as a road map. Thus arose the even larger industrial policy experiment championed by former President Joe Biden during the pandemic. In both the Inflation Reduction Act and the CHIPS Act, the federal government showered trillions of dollars in subsidies and other supports to producers of renewable energy and semiconductors, respectively—far more than what the ARRA provided.

These measures have raised concerns about waste and politicization, and their precise economic effects are still the subject of much debate. One thing is clear: The laws and precedents have helped President Trump implement state corporatism in a much more aggressive and intrusive manner than his predecessors.

For example, the government’s largest equity stake so far is in Intel, which was also the largest beneficiary of the CHIPS Act, having been awarded up to $7.9 billion in subsidies. Shortly after Lip-Bu Tan replaced Gelsinger as CEO in March 2025, Trump publicly demanded Tan’s immediate resignation, recklessly alleging he was compromised by China and threatening to withhold CHIPS Act funding that the ailing firm needed to implement Tan’s turnaround plan. After frog-marching Tan into the Oval Office for a meeting in August, Trump agreed to back down on his attacks if the company gave the government 9.9 percent of its public shares in exchange for $8.9 billion in previously awarded but unpaid CHIPS Act funding, consisting of $5.7 billion in commercial-fabrication grants and $3.2 billion from the separately administered Secure Enclave defense program.

The deal came with sweetheart terms, allowing the government to purchase shares at $20.47 instead of the $24.80 mark it closed at before the meeting, a discount at the expense of current shareholders. It also gave the government the right to purchase an additional 5 percent at $20 per share if Intel exits the manufacturing side of its business by scaling back foundries—clear pressure on the company not to divest, even if doing so makes sound business sense. In any other context, the Intel episode would be called a “shakedown”; because Uncle Sam is involved, we call it “strategic.”

The government has leveraged other subsidies, as well as federal contracts, to acquire equity stakes in several companies involved in rare-earth mining and processing: MP Materials, Lithium Americas, Trilogy Metals, Vulcan Elements, ReElement Technologies, Korea Zinc, USA Rare Earth, and Atlantic Alumina. As already noted, the government tapped the CHIPS Act to invest in Gelsinger’s xLight. The Commerce Department has murkily leveraged Trump’s “emergency” tariffs to secure a Japanese commitment to help finance up to $100 billion in domestic Westinghouse reactor projects, while a related Commerce agreement gives the government a conditional claim on 20 percent of certain future Westinghouse distributions and, under specified conditions, warrants tied to Westinghouse equity. And the Department of Defense recently invested $1 billion in defense contractor L3Harris Technologies’ missile business, meaning that the Pentagon will have an ownership stake in a company that routinely bids on defense contracts, surely a conflict of interest.

The Rent-Seeker’s Republic

The Trump administration’s state corporatism doesn’t show signs of slowing down. Lutnick has reportedly asked other semiconductor firms such as TSMC, AMD, and Micron Technology if they would consider arrangements similar to Intel’s. The Spirit Airlines deal only fell through in April because the parties couldn’t agree to the details of the proposed equity stake—not because it was being proposed. After that, and despite outright denying earlier reports of any negotiations, the administration announced that it was investing over $2 billion in the quantum computing space, spread across a portfolio of nine companies and their subsidiaries (IBM/​Anderon, GlobalFoundries, Atom Computing, Diraq, D‑Wave Quantum, Infleqtion, PsiQuantum, Quantinuum, and Rigetti Computing). The government took a minority, noncontrolling equity stake in each firm, yet another clear display of the government moving beyond subsidies and into direct-ownership industrial policy. Several more government equity deals have since been announced.

Although national security is the supposed reason for these moves, recent Trump statements make clear that there are no guardrails. “We should take stakes in companies when people need something. I think we should take stakes in companies,” Trump told the Wall Street Journal in December. “Now, some people would say that doesn’t sound very American. Actually, I think it is very American.”

It is not even remotely American; in fact, it is antithetical to the principles and policies that made America the world’s technological leader. Free-flowing capital markets should reward innovation and punish inefficiency, not allocate resources based on political connections and the president’s whims. Other countries might do these kinds of deals, but America hasn’t—and we’ve benefited greatly from this restraint.

Perhaps most galling about the government’s new state corporatism push is that there’s no need for it. The dynamism of free markets is much more efficient at coordinating information and directing capital than the state’s clumsy efforts to pick winners and losers. Private venture capitalists, for example, poured a record $600 million into critical mineral start-ups in the US last year, according to a Wall Street Journal report that noted “startups from Silicon Valley to North Carolina” are providing “new solutions to China’s crackdown on critical mineral exports.”

One such case is in Oakland, where the critical minerals start-up Brimstone is coming up with innovative new methods to produce aluminum, magnesium, and other minerals. Hundreds of miles away, Provo-based Ionic Mineral Technologies, a start-up with no federal equity stake, announced in December that it had confirmed a “major, high-grade deposit of rare earth and critical minerals” at the Silicon Ridge mine—a discovery that the company’s founder characterized as a “watershed moment for American resource independence.” Nearby refining operations will commence soon, with the benefit of sound infrastructure and light-touch regulation, not top-down planning. In January, Tesla announced that its Texas lithium refinery, the largest and most advanced in the United States, is now operational after breaking ground on the plant just two years ago, again with limited US government involvement.

Not all of these start-ups and investments will pan out, of course, but failure is an essential part of the market process—disciplining firms, informing investors, and ensuring that survivors are durable and globally competitive. A genuine market system is defined by both profits and losses. “You need to make a process that is lower cost and higher profit, or you cannot bring production to the United States,” Brimstone Chief Executive Cody Finke told the Journal.

State-invested favorites that Washington implicitly deems crucial to American greatness don’t face such discipline. In the world of state corporatism, costs and profits are second to connections and appearances, and failure is rewarded with more government support. State corporatism also makes the president a dealmaker in addition to a policymaker, a role Trump seems to crave. It elevates the executive branch to a position inconsistent with a healthy constitutional order.

External guardrails against the government’s actions, and others like them, are almost entirely lacking. In August 2025, for example, the Trump administration lifted export controls on Nvidia and AMD semiconductor sales to China in exchange for 15 percent of the revenue from the transactions, and officials did it again in December for more advanced chips (and a 25 percent cut). To avoid the Constitution’s ban on export taxes, Trump invoked Section 232 of the Trade Expansion Act—and “national security,” of course—to impose a 25 percent tariff on a narrow set of advanced semiconductors that are imported into the US for re-export abroad.

Congress has only recently begun to stir, with House Democrats issuing oversight letters questioning the administration’s legal authority for these deals and claiming conflicts of interest. Meanwhile, Republican-led committees in both chambers of Congress have advanced legislation to authorize government equity investments. The House’s bipartisan Defense Production Act reauthorization bill would keep government ownership below 15 percent and make divestment subject to commercial feasibility and national security considerations, while the Senate’s FY2027 defense bill would grant explicit equity authority to the Pentagon’s Office of Strategic Capital.

Insulated from the pressures of market forces, the state’s investments are bound to struggle eventually. Minus congressional oversight and real legislated limits, the executive’s authority and portfolio will expand even more. The real question is not whether this unbounded state corporatism is a problem; it’s “how do we unwind it?”

Cato’s Restoring Free Enterprise project aims to provide answers.