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The 'China shock' forced the United States to abandon its laissez faire economy, Biden's economics was just the first step towards state capitalism, and Trump took the second step. The shaping of the US economy by state capitalism will become apparent in the future. On July 24th, Trump (left) visited the renovated Federal Reserve with Federal Reserve Chairman Powell.
There is no unified definition of state capitalism in the Western context, which roughly refers to the combination of government intervention and market economy. In the past decade, Western society has begun to discuss state capitalism due to the rise of the Chinese economy. Ian Bremer of Eurasia Group defines state capitalism in his book "The End of Free Markets" as the state serving as the primary economic actor and judge. American scholar Joshua Kurlanzick published the book "State Capitalism", which views the economy that integrates planned economy and free market as state capitalism. The hat of state capitalism is now placed on the United States, and the Trump administration's approach of being labeled as "American style state capitalism" is as follows:
Firstly, attempting to control the Federal Reserve of the United States. As soon as Trump took office, he immediately put pressure on Federal Reserve Chairman Powell, to the point of threatening to dismiss him, but it was rejected by the Supreme Court. On July 9th, Trump called for a reduction of at least 3 percentage points in the federal benchmark interest rate to help lower the cost of repaying the national debt. On August 13th, US Treasury Secretary Besson suggested that the federal benchmark interest rate should be at least 1.5 percentage points lower than it is now. The words' stupid ',' stupid guy ',' average intelligence ', and' low intelligence 'have become Trump's catchphrase for insulting Powell.
It is rare for a sitting president to insult a current Federal Reserve chairman in such a manner.
The purpose of Trump's pressure on Powell is to directly control the Federal Reserve and control interest rate decisions. For this reason, Trump threatened to dismiss Cook from his position as a Federal Reserve governor. On August 25th, Trump proposed to dismiss Cook on the grounds that Cook had committed fraud related to mortgage buying. On August 28th, Bill Platt, the director of the Federal Housing Finance Agency, accused Cook of fraud in his third property transaction in a letter to Attorney General Pam Bundy. As long as Cook is forced out, Trump can arrange for his people to serve as directors. Currently, two of the seven council members nominated by Trump have agreed to lower interest rates. In early August, Kugler suddenly resigned, and Trump had arranged for Stephen Milan to fill a vacant seat on the board.
As long as he controls four out of seven people, Trump can influence the council. The Federal Open Market Committee of the Federal Reserve, which determines interest rates, has 12 members with voting rights, seven of whom are directors, plus the Governor of the New York Federal Reserve, and the other four are local Federal Reserve governors who take turns sitting. Trump can use the Federal Reserve Board of Governors to force some or all local Fed governors to resign early next year, thereby achieving control over the Fed's decisions. A reasonable assumption is that starting from some point next year when Powell's term expires, the Federal Reserve's interest rate decisions will follow Trump's preferences rather than being "data-driven". Trump's disruption of the Federal Reserve's independence is unprecedented.
Secondly, Trump is pushing for the government to invest in private enterprises. There are almost no state-owned enterprises in the United States, but after Trump took office, he successfully obtained "golden shares" through the acquisition of American Steel Company by Nippon Steel, and invested in the acquired company, thereby giving the US government jurisdiction over the production and trade of the new American Steel Company. In late August, he announced that the government would acquire a 10% stake in Intel Corporation, as part of a series of discussions regarding the company's billions of dollars in funding under the 2022 Chip Act. Previously, Trump demanded the resignation of Intel President Chen Liwu, citing his close ties with China as a threat to US national security interests.
Thirdly, Trump forced Nvidia and AMD to hand over 15% of their sales of artificial intelligence (AI) chips to the government in exchange for export licenses. After the transaction is completed, the government allows Nvidia to export H20 AI chips to China and approves AMD to export MI308 chips to China. It is rare for enterprises to pay for obtaining export licenses. Trump administration officials have stated that H20 is not a top performing chip, and China has also raised concerns about H20 chips, warning that they may pose security risks. China's stance has forced Nvidia to halt production of the H20 AI chip and instead focus on developing a B30A (temporarily named) chip for the Chinese market.
Fourthly, Trump is pushing the government to invest in key industries and control the economic lifeline. China's rare earth brand has defeated Trump's tariff war, forcing Trump to refrain from imposing secondary sanctions on China involving Russian oil. Therefore, Trump is determined to directly involve the government in rare earth production. In July, news spread that the Pentagon had invested in MP Materials, the largest rare earth miner in the United States. The miner revealed that an agreement has been reached, and the Department of Defense (renamed as the "Department of War" by Trump) will invest 15% of the company's shares according to the agreement, with the government promising to invest billions of dollars. The agreement requires MP Materials to build a new factory to produce rare earth magnets, which will far exceed the current magnet production in the United States. The factory is expected to start production in 2028.
According to the current state capitalist model promoted by Trump, the enterprise led US economy is no longer a typical market economy, but appears very close to a socialist government led economy.
The US economy has come this far due to the impact of the 'China shock'. Under the incentive of industrial policies, China's manufacturing industry has become the world's largest in one fell swoop. Rhodium Group's research has found that "Made in China 2025" has narrowed the technological gap between the East and the West. The powerful Made in China has become the foundation for showcasing military strength and shaping a new international order, thereby deepening the strategic competition between China and the United States.
The 'China shock' forced the United States to abandon its laissez faire economy, Biden's economics was just the first step towards state capitalism, and Trump took the second step. The shaping of the US economy by state capitalism will become apparent in the future. Since the United States is still based on a market economy, it can avoid the drawbacks of overcapacity and underestimation of consumption. The Wall Street Journal article argues that the United States has not yet gone as far as China's practitioners of state capitalism.
Liberals have launched attacks on Trump. Some people sarcastically say that Trump made socialism great again because Hitler highly praised the planned economy of the Soviet Union. He once said, "Only a top-down planned economy can reasonably use the power of a country." According to the logic of American economist Mises, Nazi Germany was a socialist country, and socialism would inevitably lead to authoritarian dictatorship. For this reason, British economist Hayek wrote a book warning that socialism is the path to slavery. Trump's rampant pursuit of power, preference for dictators, and practice of state capitalism have truly led the United States down the path of slavery. Can American democracy and the rule of law constrain Trump? rub one's eyes and wait. |
