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A big shift in economic policy is underway. One that includes more federal involvement in parts of the private sector that were once off-limits. The shift began in Donald Trump’s first term. Now, the president is attempting to cement it.
Among the steps that Trump has taken so far:
Making the government a major shareholder of so-called national champion firms, such as Intel and U.S. Steel, to shore up the manufacturing base. Both companies have lost ground in recent decades, even with extensive efforts to engineer a turnaround. The administration has also floated taking a big stake in major defense contractors, such as Lockheed Martin.
Establishing more public-private partnerships in sectors critical to national security.
One example: A multibillion-dollar agreement with MP Materials to create a mine-to-magnet rare earths supply chain.
Imposing and threatening higher tariffs, hoping to strong-arm supply chains back to the U.S. Case in point, biopharma — one of the many industries facing higher duties — has pledged at least $292 billion to expand U.S. manufacturing in the past six months.
Most of the president’s moves have a national security angle.
The decline of the U.S. manufacturing base is one of Trump’s long-running concerns. Moreover, he has so far focused primarily on industries where ongoing competition with China is a concern. Beijing now dominates “traditional” manufacturing industries like steel and is increasingly making advances in high-tech areas, including semiconductors.
His policies are also limited to where the White House has clear leverage, such as extensive federal subsidies (Intel) or a pending merger approval (U.S. Steel). The big question now is how far the administration ultimately plans to go. For now, it’s signaling clear limits in its intentions, focusing mostly on manufacturing. Case in point, federal officials say that they have no plans to take a stake in Nvidia, a chipmaker, which, unlike Intel, outsources all of its manufacturing to other firms.
The risk of a legal backlash grows if Trump pushes further. For example, if the administration begins to regularly require companies to give Uncle Sam shares as a condition of receiving government contracts, as well as permits and licenses, lawsuits are highly likely. The White House could see its strategy blow up sooner than that if the courts nix its current authority to impose across-the-board tariffs.
Also unclear: How effective this strategy will be. Intel will be a key test case. More federal involvement could help the struggling chipmaker land more customers, or it could worsen the company’s long track record of corporate mismanagement.
Trump’s policies are not unprecedented, but their permanence is unusual in modern times. For example, Uncle Sam temporarily took ownership of GM in 2009.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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