American capitalism is being remade by state power
- The Trump administration appears to be shifting towards state-directed capitalism, where the government plays a more active role in guiding industries and companies.
- The US is currently operating under a hybrid model of capitalism, blending free-market principles with elements of state capitalism, as seen in recent moves such as taking a 10% stake in Intel.
- There are three main forms of capitalism: free-market capitalism (hands-off approach), state-guided capitalism (government support for favored industries), and oligarchic capitalism (small elite controls the economy).
- The US government is increasingly using equity arrangements, such as taking ownership stakes in companies like Intel and MP Materials, rather than traditional incentives-based approaches to industrial policy.
- The shift towards state-directed capitalism raises questions about the future of American capitalism and how Washington’s interventions will reshape the country’s economic landscape over the next few years.
Is the Trump administration trying to reshape American capitalism? Recent moves by Washington, such as taking a 10% share of semiconductor maker Intel, point to a shift in that direction. For decades, Washington has supported free-market capitalism. Today, the government appears to be supporting a new direction – state-directed capitalism.
As a professor at the Questrom School of Business who studies different economic systems, I find this reversal striking. My research is supported by the Ravi K. Mehrotra Institute, which is trying to understand how business, markets and society interact. My previous research – finding, for example, that U.S. news coverage of capitalism was far more negative in the 1940s than it is now – suggests capitalism isn’t in retreat but is rather evolving.
In what direction is the Trump administration pushing it?
Types of capitalism
While many people bandy around the term “capitalism,” it actually comes in many different forms. The most basic definition of capitalism is when the means of production – such as factories, farms and offices – are owned by private individuals.
Capitalism is driven by profit. Some of the earliest descriptions of the profit motive that drives the whole system come from Adam Smith. As he wrote in 1776, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”
Who gets the profits and who controls the means of production determine the specific forms of capitalism. While there are many types, I want to focus on three of the most important.
Free-market capitalism, also called laissez-faire capitalism, is when the government takes a hands-off approach to the economy. The U.S. after the Civil War is a good example of free-market capitalism. During the late 1800s, the federal government imposed few regulations on businesses.
State-guided capitalism is when the government chooses industries or companies to support. Favored sectors are given money and face looser regulations than nonfavored sectors. China today is an example of state-guided capitalism, where the state provides support for industries such as shipbuilding, steel and AI.
Oligarchic capitalism is when a very small part of the population owns key industries and controls the economy. Russia today is an example of this type of capitalism.
Each form of capitalism has its strengths and weaknesses. For example, free-market capitalism provides the most incentives to grow the economy, but the lack of rules often leads businesses to run roughshod over consumers. U.S. historians describe the late 1800s as the era of robber barons.
State-guided capitalism can dramatically boost the output of favored industries. However, if the government invests in the wrong industries, huge amounts of money can be wasted propping up dying firms.
Oligarchic capitalism can rapidly invest in new areas and shift resources, but the profits enrich only a tiny elite.
Recent changes
The U.S. currently appears to be operating under a hybrid model of capitalism, blending free-market principles with elements of state capitalism.
One of the most recent changes is the Trump administration’s decision to take a 10% stake in Intel. Congress passed the multibillion-dollar CHIPS and Science Act in 2022 to bolster U.S. computer chipmakers. Intel is slated to receive US$11.1 billion in grants from the program and other government funding. The current administration has converted that public support into a 10% ownership of the semiconductor maker.
Intel isn’t alone. The government has recently become a shareholder in other companies it views as strategically important – a trend that seems likely to continue and possibly result in the creation of a “sovereign wealth fund.” In July 2025, the Department of Defense agreed to buy $400 million of convertible preferred stock in MP Materials. MP Materials is the only U.S. rare-earth minerals mine with integrated production capacity. The company said the Department of Defense would be positioned to become its largest shareholder.
The government is also requiring a share of revenue from large computer chip manufacturers. Nvidia and AMD will have to remit 15% of revenue from certain chip sales to China as a condition for export licenses.
Why the US change is important
The CHIPS and Science Act has already funneled billions into U.S. semiconductor manufacturing via grants, tax credits and R&D support. MP Materials and Intel could serve as pilot models for further strategic intervention. However, the U.S. government spends trillions each year, and the amounts invested in American industries and companies represent only a small percentage of total spending.
While the CHIPS and Science Act was passed in 2022 under the Biden administration, the implementation relied on traditional tools of industrial policy such as grants, tax credits and milestone-based funding. In contrast, the Trump administration has converted these grants into equity arrangements, with officials stating the government should get a return on its investment.
This shift from an incentive-based approach to a direct ownership model represents one of the most fascinating experiments in modern American capitalism. The real question is what happens if – or when – this strategy expands. The government could become more involved in energy, biotech and AI, or any place where markets show signs of lagging or supply chains are geopolitically fragile.
The U.S. isn’t rejecting capitalism but recalibrating its boundaries. The next few years will show exactly how Washington’s interventions will reshape U.S. capitalism.
H. Sami Karaca receives funding from the Ravi K. Mehrotra Institute.