State capitalism in the USA

Although the calm of the stock markets may be misleading, the United States has experienced one of the most momentous weeks for financial markets since the banking crisis 15 years ago. President Donald Trump’s decision to dismiss Federal Reserve Governor Lisa Cook (who sued the president on Thursday) could end the organization’s 74 years of independence, and subject monetary policy to the whims of the White House. This is a complete shift in the paradigm that has governed the world’s largest economy for decades, and it finds more echoes in emerging markets and authoritarian leaders than in developed economies and liberal democracies.

Before his battle with Cook, Trump had already attempted to remove Federal Reserve Chairman Jerome Powell over the latter’s refusal to lower interest rates to his liking. Earlier this month, the president fired the head of labor statistics for publishing employment data that he disliked. Trump wants to make it clear who’s in charge, and he considers the slightest uncomfortable remark to be dissent.

The seven months since he took office have served to bury the long-standing Republican tradition of free markets and a reduced role for the state in the economy. The economic liberalism the world took for granted has given way to an attempt at sectarian control by the White House over institutions, and to intervention by the administration in private companies, an unprecedented step in American politics. While the U.S. government has always stepped in to support its strategic interests through public loans, tax breaks, and investments, this has been for exceptional reasons (such as World War II or the Covid-19 pandemic) and on a temporary basis.

Last week, the Trump administration announced its decision to convert a government loan to the chipmaker Intel into a 10% stake in its stock. There will be more such moves, Trump has warned. In July, the Defense Department closed a deal with MP Materials to buy a 15% stake in the company, which operates the only major rare earth mining facility in the U.S. More recently, Trump has demanded that technology companies Nvidia and Advanced Micro Devices turn over 15% of their sales to China in exchange for authorization to carry out these transactions. Washington forced Japan’s Nippon Steel to transfer a controlling golden share to allow it to purchase the steelmaker US Steel. In tariff negotiations, the president has demanded from his main trading partners (the European Union, Japan, South Korea) investments totaling $1.5 trillion, which he is preparing to personally direct. Meanwhile, he has promoted regulation to boost the cryptocurrency market, in which his own family has multimillion-dollar investments, in a clear conflict of interest.

If China’s accession to the World Trade Organization (WTO) at the beginning of the century was based on the belief that economic liberalization would lead Beijing to move toward the American model, now it seems more like Washington is adopting the Chinese model with American characteristics. Those who know Trump emphasize that this shift is more a result of his way of doing business translated into politics than an ideological purpose. The problem is not his personality, but rather his ability to do what he is doing. Trump is not only trying to put institutions at his service, but also large companies and markets. The consequences of this shattering of certainties for the economy will be far-reaching.

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