US President Donald Trump built his economic thesis in his first term (2016-2020) on industrial capitalism and returning factories to the United States. He continued this trend in his second term, with the transition to another phase of capitalist preferences, which is artificial intelligence, which is contrary to the pattern of factory capitalism that absorbs a large number of jobs.
But Trump’s thesis was not limited to that. Rather, he moved to a pattern that the United States had not seen since the great financial crisis in 1929, when US President Theodore Roosevelt applied the theory of economic thinker John Maynard Keynes through the “Grand Bargain” thesis, where the American government intervened in the economy through organized and institutionalized state capitalism. What is happening today in Trump’s era has historical precedents, but it is done with tools that involve barter and not supervision and regulation, and this is what initially confused the CEOs of major companies, and prompted an increasing number of… Corporations must reformulate their relationship with the government, within new rules that redraw the boundaries of the market and the state in the United States.
The Wall Street Journal monitored CEOs’ views on Trump’s “state capitalism” style. A few days ago, Nvidia obtained permission to sell one of its most advanced chips to China. But on one condition: that the US government receives 25% of the proceeds from those sales.
The Nvidia deal says a lot about the nature of the relationship between the business world and government under President Donald Trump. His repeated interventions in boardrooms—whether by acquiring ownership stakes, cutting percentages of revenues, owning a “golden stock,” or by pressuring companies to lower prices or selling drugs through a federal website—constitute a model of “state capitalism,” where the state does not necessarily own companies, but uses its broad influence to direct their behavior.
State capitalism is a two-way street. By aligning themselves with Trump’s agenda, many companies are getting better treatment—in their ability to sell to China, in the amount of tariffs they pay, in the way they are regulated, and even in the mergers they are allowed to complete. According to the Wall Street Journal, state capitalism serves not only the interests of the American government, but also the interests of its crony capitalists.
In fact, Nvidia is paying for a license that was previously free, but it has not expressed any objection. In return, it gains access to a lucrative market that would otherwise remain closed to it. In August, shortly after Trump first proposed a 15% cut, CEO Jensen Huang said in an interview: “Whatever it takes to get approval and enable us to sell in China, we’re OK with it.”
The question remains: Is this close relationship between the state and some capitalists beneficial to the country?
State capitalism is not socialism, as the government owns the means of production, and it is also not free market capitalism. It is a hybrid model, variants of which have long appeared outside the United States. It was common in Japan and Western Europe, and is still strongly present in China, Russia and other countries to varying degrees.
In the United States, the government’s acquisition of stakes in companies or harnessing their production has been limited to wars or emergencies such as the financial crisis or the Covid pandemic. As for Trump, he has made this a normal practice.
“I think we should own shares in companies,” Trump told the Wall Street Journal last week. Some might say that doesn’t sound American. But I actually see him as very American.”
Behind closed doors, according to the newspaper, many business leaders are averse to Trump’s interventions, just as they denounce his attacks on the Federal Reserve, and on law firms and the media that oppose him. But publicly, most remain silent, and some even show clear support. The reasons are due to complex factors. Fear is one of them. But identification with Trump’s broader agenda is another reason. After what many considered a “regulatory and executive attack” during the era of former President Joe Biden, a large number of businessmen now feel comfortable with Trump’s pro-business appointments. He began reducing regulatory restrictions, facilitating merger deals, and passing tax cuts for companies.
Many prefer a government that has limited intervention and keeps its distance from the private sector. But with Trump, that is no longer an option. So many of them seek to work closely with the president and his inner circle to achieve their most important goals.
For example, Pfizer agreed to reduce the prices of some drugs for American consumers, sell some of them through a federal portal called Trump RX, and invest in manufacturing within the United States, in exchange for exemptions from customs duties. During an event at the White House, Pfizer CEO Albert Bourla thanked Trump and pledged that the “historic” agreement would meet the president’s demands to reduce the cost of medicines.
The convergence between the state and capitalists appears most clearly in the race for artificial intelligence. Silicon Valley and Trump agree that this race is crucial to maintaining American economic growth and strategic superiority over China.
From the beginning, Silicon Valley supported Trump, and senior executives attended his inauguration. The next day, the president announced at the White House a $500 billion artificial intelligence infrastructure project, called “Stargate,” led by OpenAI, Oracle, and SoftBank.
In contrast, Trump strongly supported the sector’s priorities, canceling Biden’s directives related to artificial intelligence, national security, and public health, and pushing for more energy to meet the massive demand for data centers. Last week, he signed an executive order to penalize states that regulate artificial intelligence. So far, major technology imports, such as Nvidia chips and Apple phones, have been largely exempt from tariffs.
The administration’s role is not limited to supporting the sector, but also participates in it. Shortly after Trump claimed a 10% ownership stake in Intel, Nvidia, in turn, invested in the company, which is a potential supplier and competitor.
This was one example of many “circular” deals that blurred the boundaries between competitors and customers, and sometimes even between the private sector and the federal government itself.
This is reminiscent, to some extent, of the intertwining of ownership that previously characterized the Japanese economy. On the one hand, cooperation between major AI players may accelerate the pace of investment and maintain the US lead over China. On the other hand, it may raise entry barriers for new competitors, at the expense of competition and innovation. “These deals are not direct acquisitions, but more like partnerships and joint investments,” Doha Makki, who worked in the Justice Department’s antitrust division in the Trump and Biden administrations, told the Wall Street Journal. “But if you map them out, they start to look like monopoly entities,” adding that “antitrust agencies should ask questions about the nature of these relationships.”
So far, competition in the field of artificial intelligence appears relatively good, and the Department of Justice confirms that it is monitoring any monopolistic behavior. But on a broader level, the administration seems more interested in building “national champions” capable of competing abroad, than maintaining competition within the American market.
If artificial intelligence is a potential bubble, as many fear, its bursting could threaten the capital that finances data centers and American economic growth. Therefore, some Silicon Valley leaders believe that Washington should support the sector as it previously supported banks.
No company embodies the “national champion” model more than NVIDIA, which dominates the market for graphics processing units used to train and run artificial intelligence models.
The Biden and, initially, Trump administrations banned NVIDIA from selling many of its advanced chips to China, with the aim of slowing the progress of major Chinese artificial intelligence companies such as DeepSec. But Huang held repeated meetings with Trump and other officials, and visited Congress, arguing that allowing the sale would preserve American leadership by keeping Chinese developers dependent on “the American technology ecosystem.”
Trump’s technical advisor, David Sachs, adopted the same opinion inside the White House, likening the situation to how Huawei outperformed Western companies in fifth generation networks.
Before Trump, Biden had already adopted an industrial policy through the “Chip Act,” which pumped billions of dollars in grants to companies like Intel to build factories capable of producing advanced chips, including those designed by Nvidia.
But unlike Biden, Trump believes Washington should extract value directly from the companies it needs to support. Management converted Intel’s grants into ownership stakes, and despite the dilution of shareholders’ stakes, the company’s shares rose, as investors bet that the government would direct business toward Intel as Beijing does to its national champions.
Although the arguments of Huang and Sachs may have been sufficient in themselves to change management’s position on NVIDIA’s sales to China, cutting 25% of revenues likely helped resolve the decision.
But the risks are clear. The Treasury Department’s profitability from Intel shares or from chip sales to China may distract from national security considerations. After converting the “chip” grants into ownership, Intel is no longer bound by the conditions imposed by the Biden administration to build certain types of advanced manufacturing capabilities within the United States.
“Don’t fall into the trap of saying we’re doing this to make profits for the government,” Gina Raimondo, Biden’s commerce secretary, said last month at the Council on Foreign Relations. This is not the goal. The goal is to achieve a national security outcome.”
State capitalism is supposed to serve the country’s interest, but the temptation is great for those in power to mix the state’s interests with their own interests, and then state capitalism turns into “crony capitalism.” The Wall Street Journal mentioned the model of competition between Netflix and Paramount in acquiring Warner Bros. Studios, which also owns CNN. Trump said ownership of CNN must change, regardless of who buys the company.
