U.S. Capitalism with Chinese Characteristics

Greg Ip's right about this and everyone seems weirdly fine with it. Trump's messing it up, but is there something useful in here somewhere?

We are witnessing two remarkable things: one, the extent to which the Trump administration is injecting the government into the private sector, and two, which is remarkable in how we’re not witnessing it, this is happening with almost zero pushback, either from policymakers or the commentariat.

The always insightful Greg Ip from the WSJ did a column and a podcast on the topic, with the title (like that of this post) riffing off of the old Chinese description of their system as “Socialism with Chinese Characteristics.” The WSJ ed board squawked a bit about this policy drift, but they just phoned it in…their heart wasn’t in it.

Otherwise, it’s crickets. It’s not exactly breaking news that Trump gets a pass on this stuff from much of the media, the business community, and even my fellow econ commentators, especially compared to Biden. We got endless incoming on how our industrial policy was messing with markets, picking winners, and so on. Trump’s going waaaaaay further than we ever dreamed of, but none of these groups seem particularly riled up about it.

I’m here…well, not to praise his intrusions…but not to blanketly condemn them either. As usual with this team, there’s no coherence to any of it; it’s all ad hoc, momentary transactions, ideas that pop into the president’s head in the midst of meetings with industry heads.

But it does provide a useful opportunity to take a closer look at the economics of our gov’t’s role in the private economy and why what we did and even why some of what Trump’s doing deserves objective consideration.

First, what’s he doing?

Recent examples include President Trump’s demand that Intel’s chief executive resign; the 15% of certain chip sales to China that Nvidia and Advanced Micro Devices will share with Washington; the “golden share” Washington will get in U.S. Steel as a condition of Nippon Steel’s takeover; and the $1.5 trillion of promised investment from trading partners Trump plans to personally direct.

I’d add the 10% equity stake Trump plans for the US gov’t (USG) to take in Intel, making the USG the firm’s biggest shareholder; also, the USG’s stake in the critical minerals company MG Materials. And, of course, Trump’s constantly telling private firms to get rid of anyone who says anything he doesn’t like.

What should we make, substantively, about all this intervening?

First, the Dean Baker point: before anyone just says “no! full stop!” please recognize that there never has been a clean split between the public and private sectors. It’s always a matter of degree. Tax policies are an obvious way the gov’t favors different sectors: why should capital gains get special tax treatment vs. regular, working-stiff-type income? Partly because finance has the lobbyists to get the tax breaks, but also due to the idea that doing so will lower the cost of capital and boost investment. Dean also elevates patents, copyrights and many other gov’t-induced rules of the road that strongly influence private behavior, the pace of innovation, as well as winners and losers. That’s all industrial policy and it has been with us forever.

In the Biden admin, we arguably took this further, with legislated (I highlight the word because it’s a big, underappreciated difference, even by Ip, with what’s happening now) industrial policies targeting clean energy and semi-conductor production. We also employed surgical, vs. sweeping, tariffs in sectors we wanted to protect, including EVs, solar cells, batteries.

I’ve long defended some—not all—of these interventions. Both on national security and market—if not “failure,” then “underproduction”—criteria, there are good rationales for incentivizing greater investment and production in the areas we targeted. US industry and especially US financial markets tend to emphasize near-term ROI horizons as they have high discount rates for the future. The USG, otoh, can provide more patient capital in projects that have longer payout horizons. Climate change and renewable-energy investments embody these dynamics, though of course Trump is going hard in the wrong direction in that space.

The right question, then, is not whether the USG should be in the markets, it’s how much, how deeply, for how long, in what sectors, and in what formats?¹

Before I tackle those questions, though, consider this NY Times article from yesterday²:

The article documents the extent to which the Chinese are way ahead of us in EV production and battery technology, the latter of which also has very important uses beyond EVs (energy storage is critical to reliably deploying renewable energy from wind and solar). Their advantage is, of course, no accident. The Chinese gov’t has aggressively invested in EV production as well as the infrastructure to support their proliferation.

Regarding that last part, note this point from an industry consultant:

In the long run, he said, a major factor in China’s success today has been its upfront investment in its charging network.

“The thing that I don’t think we give them enough credit for,” Russo said, “is they put all this investment in infrastructure before there was even a market for this stuff. Because they knew without the investment in infrastructure, there would never be a market.”

Useful industrial policy engages in precisely this type of forward-looking, seeing-around-the-next-corner type of insights. And to be clear, China gets this wrong as much as they get it right: they’ve massively overinvested in real estate and mercantilist manufacturing, recklessly steering far too many resources to where they aren’t needed, and doing so at the expense of greater domestic investment in their population.

But at this point, we’re hardly even in the game. China’s clean-energy, EV, and battery exports penetration may not be reaching the U.S. due to the tariff walls (stood up by both Trump and Biden), but they’re reaching the rest of the world.

Even Trump can see around the AI-race corner, but because he’s such a capricious, solo actor, he’s going about all in the wrong way, making weird, bespoke deals with whomever happens to show up in the Oval, while killing the renewable energy projects necessary to efficiently supply power to the nascent industry. In this regard, his approach to what Ip calls “state capitalism” or industrial policy has steep costs, both actual costs and opportunity costs. The chaos, uncertainty, and self-dealing are antithetical to investing and innovating. It’s much more efficient to get invited to the White House or Mar-a-Lago, flatter your host, and get a subsidy.

So, what can we learn about the proper role of industrial policy from this moment? Going back to the questions I posed above:

How much industrial policy and in what sectors? Not too much. The idea is identify important-in-the-future sectors wherein current market structures and incentives are likely to provide insufficient investment. EVs and batteries are good eg’s as are other sources of clean energy production. National security, as in chip production, given their role in military equipment, is another legit criterion. The “Deploy” chapter in Abundance makes a muscular, evidence-based case for gov’t’s role in scientific research.

Btw, there’s an important role for global trade in this decision process. If another country—especially an ally—has a comparative advantage, the bar to USG involvement in that production is higher. In the current context, we don’t need a fully domestic auto-production function. We need, and were doing fine with, a North-American auto-production supply chain.

For how long? The same Greg Ip made what I thought was a fair critique of our industrial policy in the Biden years: what’s your limiting principle? If the USG got it right in step 1 above, then over time (years, not quarters, but not decades), the sector should be able to cruise without the training wheels, which I believe is now the Chinese EV story.

What formats and processes? The traditional tools are loans, loan guarantees, grants, tax credits, advanced purchase agreements and they generally work well, assuming we’ve done our homework on the other criteria above. I was a member of the Obama Autos Taskforce wherein we used TARP assets to purchase shares in GM and Chrysler, but that was an extreme situation wherein liquidation was an active concern. And do give this doc a glance, as it shows how seriously we took this intervention, the conditions we imposed, included company restructuring and union concessions, protection for workers’ health care, and a clear exit plan. Absent this level of emergency, it’s not obvious to me why the USG should acquire an equity stake in a private company.

One last, admittedly controversial point. As I’ve argued before on these pages, there is room for greater cooperation with China in this space. I’m not questioning for a moment their status as a geopolitical rival, but our economic stance isn’t making much sense to me. Rather than keep out their EVs and 5-minute charging tech, we should learn from them, perhaps under a quota system. We should allow them to produce here, ideally in tandem with American auto-producers (Ford has long been working with the Chinese battery producer CATL in this spirit). Such cooperation would not only improve our chances of getting back in the EV and battery production game, but would give more Americans access to more affordable, and from what I’ve seen (in Europe), high-quality EVs.

In sum, while there’s a clear and important role for careful industrial policy, Trumpian capitalism with Chinese characteristics, is problematic. It’s far too authoritarian and much too dependent on the whims of the party leader and therefore too likely to generate wasteful investments over here in this sector at the opportunity cost of better ones over there in that sector.

But there is a right way to do this, and it would be very much in our interest to get back on that path ASAP.

1. I found the discussion of these points in the “Deploy” chapter of the the Abundance book to be thoughtful and correct.

2. The Times has a series on this issue, starting here: https://www.nytimes.com/interactive/2025/06/30/climate/china-clean-energy-power.html