Trump’s economic meddling suggests a new kind of pay-to-play corporatism

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U.S. President Donald Trump has long taken a transactional approach to economic management. He has threatened tariffs against trading partners to extract concessions, and pushed them to purchase American energy, soybeans and Boeing Co. BA-N jets to maintain access to the world’s largest consumer market.

Recently, the President has found a new group to shake down: American companies.

This week chipmakers Nvidia Corp. NVDA-Q and Advanced Micro Devices Inc. AMD-Q agreed to pay the U.S. Treasury 15 per cent of the profits earned from selling certain advanced semiconductors in China in return for export licences.

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Earlier this year, Mr. Trump demanded the U.S. government get a “golden share” – giving it certain veto powers – as a condition for approving Nippon Steel Corp.’s NPSCY takeover of U.S. Steel Corp., and the administration is in talks to take a direct stake in Intel Corp. INTC-Q, according to media reports. The President has also called for Intel’s chief executive officer to step down and said Goldman Sachs should fire its chief economist.

These interventions in the private sector are happening alongside attacks on institutions that underpin well-functioning markets.

Mr. Trump has threatened to fire Federal Reserve chair Jerome Powell for not lowering interest rates. And he sacked the head of the U.S. Bureau of Labor Statistics last week following an unflattering jobs report and is seeking to install a MAGA loyalist.

The United States is not about to abandon market capitalism for state-centric planning, economists say.

But the President does seem to favour a pay-to-play economy in which foreign countries and domestic companies pay tribute to the White House for special privileges, and business decisions are increasingly influenced by political considerations.

That, economists warn, is a recipe for slower economic growth, less innovation and lower living standards over time.

Past American presidents, from both parties, have used their bully pulpit alongside more aggressive measures, such as antitrust investigations, to bend the private sector, said Ryan Bourne, an economist at the Cato Institute, a libertarian-oriented think tank.

“The difference this time is that we’ve got to a position where the President is making deals with specific firms and demanding specific individuals resign, and telling specific companies how they can advertise their prices, and tying licences to export, effectively, to direct payments to the Treasury,” Mr. Bourne said.

“I think that the best way to think about this as a kind of economic framework is kind of like maximalist corporatism,” he said.

That model is more familiar in emerging-market economies, in which weak institutions let politicians skim off the top and direct business to well-connected insiders, or in state-centric systems, such as China, where governments play a major role in allocating capital.

The U.S. is hardly China – although Mr. Trump has said he’ll personally direct the hundreds of billions of dollars’ worth of investments other countries have promised to make in the U.S. as part of recent trade deals. And American institutions, particularly the courts, remain a check on government overreach.

But there is a risk that President Trump’s private-sector deal-making will distort business decisions and undercut smaller companies.

“I really worry about the competitive landscape with this,” said Mr. Bourne. “You can come to a deal with Nvidia, AMD, Apple, these massive global companies. But the idea that some small manufacturer being squashed by tariffs is going to be able to get an audience with the President, specific exemptions or carveouts, is for the birds.”

Economists also worry about Mr. Trump’s attempt to exert more control over institutions, such as the Fed and the BLS, which help create the conditions for private markets to operate.

Mr. Trump has walked back his threats to fire Mr. Powell, whose term as Fed chair ends in May, and financial markets have largely discounted the possibility. But the President and his top officials continue to call for huge interest rate cuts, muddying the water for the independent central bank as it tries to balance the inflationary impact of tariffs against a possible economic slowdown.

Meanwhile, Mr. Trump’s decision to fire the BLS Commissioner Erika McEntarfer – after a monthly employment report that revised down recent job creation numbers – and replace her with E.J. Antoni, chief economist of the Trump-aligned Heritage Foundation, has led some economists to worry about the quality of U.S. government data going forward.

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John Sabelhaus, a visiting fellow at the Brookings Institution and a former Fed statistician, said it would be difficult for a Trump loyalist, or anyone else, to rig U.S. economic data. Information about the labour market comes from too many different sources, at the state and national level, as well as from the private sector, to fudge over an extended period, he said.

The bigger concern is “that they’re going to gut the BLS, and that they’ll just stop producing the numbers that you need, and we lose the ability to measure the economy,” he said.

Statistical agencies have already been starved of funding for years, and that trend could accelerate, he said. “Operating in a market environment involves having the information, and we’re destroying that. So, the ability of companies to make good rational decisions is really at risk.”

In all of this, it’s not clear whether Mr. Trump is pursuing an ideological agenda or simply trying to shore up his power and secure “wins” he can sell to the American public, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative, market-oriented think tank in Washington.

“Xi Jinping wanted to create a model of corporatism, state capitalism, and was very good at doing that … I think it’s going beyond the evidence to argue that President Trump wants to inaugurate a state capitalist regime,” said Dr. Strain, referring to China’s President.

“It’s probably more likely that President Trump doesn’t have strong views on different economic systems and just kind of wanted to shake down Nvidia.”

Dr. Strain said that Mr. Trump’s approach to the economy is currently ascendant in Washington, but it doesn’t necessarily run deep within the rest of the Republican Party.

“If you put all 53 Republican senators in a room and you ask them in an anonymous poll: ‘How many of you think that Nvidia should be shaken down to hand over 15 per cent of their Chinese sales revenue? How many of you think the U.S. should have a golden share in Nippon Steel? How many of you think the President should be able to ignore the law and not enforce the TikTok legislation that passed both houses?’ You get 52 of them who would say this is all crazy,” said Dr. Strain.

But publicly, politicians formerly committed to free markets and private enterprise have largely kept their heads down and avoided criticizing the powerful President.

“If you look, you can already see people standing up,” Dr. Strain said. “But it’s not most of them.”