The U.S. government is increasing its direct investments into private corporations’ activities. This shift has a powerful precedent in major historical interventions such as the Great Depression and World War II. This shift, led by President Donald Trump, raises questions about the future of market dynamics and the role of government in business.
At key moments in American history, the federal government has intervened to rescue major industries facing crises. In 1971, the federal government, under President Nixon, stepped in with a loan guarantee to Lockheed to avoid its failure. In the 2008 Great Recession, the federal government intervened to save the automaker. They took a controlling interest in General Motors to try to save it. In the end, these interventions proved very costly to taxpayers when shares were eventually sold.
Trump’s administration has only continued this legacy by showing an unprecedented openness to purchase straight into publicly traded corporations. He further suggested that the U.S. government should take a 50% stake in TikTok as part of a joint venture. This move would signal a break with the previous corporate investment playbook and match with his administration’s aggressive economic shakeup more broadly.
The president’s impact goes farther than just investments he might win today to crystalize important, decisive actions taken by large companies. These days, business decisions at U.S. Steel, the nation’s third-largest steel producer, have to run through the White House, where Trump personally holds veto power. This level of unprecedented control places Trump in an unprecedented position within the Republican Party. It allows him to intervene in private sector matters in ways that would be politically impossible for any Democratic president to do.
As Mark Wilson writes, we find ourselves at a historical inflection point where it is appropriate to reevaluate the last generation’s assumptions. He further argues that the idea that markets and free trade can solve all our national security problems is under renewed scrutiny.
The Trump administration has been very proactive in crafting strategies to help American companies. These actions follow direct investments and state-backed competition from China. This includes protecting the U.S. mining industry from what U.S. Department of Interior Secretary David Bernhardt recently described as “Chinese mercantilism.” Japan’s Nippon Steel stands out with its superlative decision. Or that they offered to give Trump a “golden share” in U.S. Steel as part of a contentious merger deal.
The critics of the government’s heavy hand in the industries are often themselves subject to attack. On that panel, Sarah Bauerle Danzman warned against a heavy-handed government approach to addressing market failures. She cautioned that all of these changes can set off a domino effect of new market failures. As critics have explained, these interventions can sometimes accidentally produce new problems instead of solving old ones.
Nevertheless, some in the industry consider this mechanism to be a positive move. James Litinsky announced a different approach to speed up free markets. He reiterated the need to get the supply chain we want onshore, not the one we wish. Industry champions describe a new level of government engagement as unprecedented. As Gracelin Baskaran told us, “This is the largest public-private partnership that the mining industry has ever had here in the United States.”
You might think that Trump is trying to reduce the government’s role in the markets. This new tack has many onlookers pondering what smart investments will come from his administration. Commissioner Don Bilson said, “We’ve made an investment in US Steel and MP. Now, we’re waiting for the next announcement of where this administration is going to invest next.”
The U.S. has a long and proud tradition of intervening in industries that are vital to our national defense. In World War I, railroads were nationalized by President Woodrow Wilson, returning them to private ownership with the end of the war. This historical precedent highlights the difficult balance between government and business in times of national crisis.
As Trump steers through this rapidly changing terrain, it’s impossible to say exactly what it will mean for markets and public policy. The political ramifications of encasing the expanded government investment in private companies will no doubt dominate political discussions for years to come.