Trump's New World Order

Plus: A Requiem for the Free Market

"The combination of economic and political power in the same hands is a sure recipe for tyranny." — Milton Friedman, Free to Choose.

The New World Order. Modi, Putin, and Xi. Trump wasn’t invited.

ICYMI: I cross-posted this piece from Daniel Drezner about the omnishambles of Trump’s foreign policy: “Donald Trump's Biggest, Dumbest Personalist Foreign Policy Flop Yet.”

Very much worth your time:

• NYT: “The Nobel Prize and a Testy Phone Call: How the Trump-Modi Relationship Unraveled” (Gift link)

• Kapil Komireddi: “The U.S. Wooed India for 30 Years. Trump Blew That Up in a Few Months.”

• “Trump’s double humiliation as Xi embraces Modi and Putin” - The Telegraph

• Xi Uses Summit, Parade and History to Flaunt China’s Global Pull - The New York Times

Happy Tuesday

A Requiem for Free Market Economics

The word “requiem” is derived from Latin, which is appropriate in this context, because free market economics is rapidly becoming the equivalent to that dead language: admired in theory, but no longer actually spoken by anyone outside of the cloistered corridors of a few libertarian think-tanks.

One sure sign that capitalism is sun-downing? Now that free markets are in decline, they are getting that strange new respect reserved for the irrelevant and inoffensive. Liberal Cass Sunstein now writes elegiacally about free market thinkers like Friedrich Hayek and Ludwig Von Mises. “Here’s what I want to emphasize,” he wrote last week.

I like Hayek a lot less ambivalently than I once did, and von Mises, who once seemed to me a crude and irascible precursor of Hayek, now seems to me to be (mostly) a shining star (and sometimes fun, not least because of his crudeness and irascibility).

The reason is simple: They were apostles of freedom. They believed in freedom from fear.

A reminder: You never know what you’ve got, ‘til its gone.

The decline of free market politics did not, of course, happen overnight, or even in the last few months. Over the last century, free markets have increasingly been honored more in the breach than in actual practice or policy.

But Donald Trump is driving a stake into what is left, as he increasingly embraces a policy that looks more like China’s model of a state-led economy than anything Milton Friedman ever envisioned.

As the NYT noted last week, “Protectionism, industrial policy and government ownership — all once conservative boogeymen — have become official doctrine.”

Ronald Reagan famously declared, “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help’.”

That’s not how President Trump — or his party — feels.

The president wields tariffs to boost American companies. Populist Republicans in Congress back government subsidies to juice manufacturing. The United States is taking a 10 percent stake in Intel and a 15 percent cut of sales by Nvidia, both chipmakers. And Trump wants to replace the people who run the independent Federal Reserve with more compliant appointees.

Trump’s vertiginous embrace of government control tends to obscure its radicalism. As Jeffrey Sonneberg writes in Time:

The federal government’s revenue-sharing agreements with Nvidia and AMD, as well as its equity stakes in Intel, U.S. Steel, and MP Materials, threaten the very foundations that have made the U.S. economy the best in the world—and undermine the economic philosophy of many Trump supporters.

Trump is not, of course the first president — not even the first Republican president — to jettison free market principles when it seemed convenient. His predecessors imposed wage and price control; and opened the door to the kind of crony capitalism that now dominates our political economy.

Consider the Lobbying Class that grew under both Democrats and Republicans: They neither sow nor build; They manipulate; they curry favor with legislators; they cajole regulators; they appease the administration; and they multiply as government expands. “Lay out a picnic, you get ants,” explained the Cato Institute's late David Boaz, “hand out more wealth through government, you get lobbyists period.”¹

The Great Bailout that followed the Great Recession was an orgy of corporate welfare and government intervention — State Socialism for the Too Big to Fail.² But many of those interventions were temporary. Trump has taken it to a whole new level, posing a direct threat to American Capitalism. Writes Steve Rattner:

Mr. Trump is muscling his way into our economy in ways that are alien to traditional Republican principles, alien even to what more interventionist Democrats have argued for and wildly at odds with any sensible notion of how the relationship between government and business should be managed… ³

Despite this, the party that used to champion economic freedom now sits idly by as Trump tightens state power over the means of production. Irwin Stelzer writes in the Financial Times: “Trump sees off the free-market capitalism that enriched America.”

Trump replaced it with a system of tariffs that transfers enormous powers to him. Nvidia, a world leader in AI development, was granted an export licence to sell some of its chips to China in return for directing 15 per cent of the proceeds to the Treasury over which Trump, in effect, presides.

The president now has life-and-death power over Apple, which has won exemption from tariffs on its iPhones and other devices by pouring the odd billion into Trump’s headline-generating announcements of new investments in America. Such relief is in the gift of the president, creating a giant pay-to-play casino where market forces, flawed though they were, once prevailed. Congress can read all about it on Truth Social….

Some conservativess are pushing back: “That's socialism,” declared conservative talker Erick Erickson. “You may be comfortable with socialism. You may decide you like socialism because someone from the Trump administration wants socialism. But my God, people, what have we been fighting for for the last decade? You want smaller government? This expands it."

But most Republicans seem okay with (waves hands) all of it.

The acquiescence of the GOP can be written off to now-routine cowardice and hypocrisy. Many Republicans mouthed the pieties of freedom, but never actually believed them, any more than they believed in genuinely small government or that “character matters.” Frankly, Republican politicians had always enjoyed picking the winners and losers as much as the next guy.

But what should we make of the silence of the business community? Where is the pushback? Where are the defenses of capitalism? Where is the alarm about the Leviathan state?

Cue the crickets. Via CNN: “Corporate America is silent as Trump abandons free-market principles.”

Take the US Chamber of Commerce, the largest business advocacy group in the country.

Last year, the Chamber sued a federal consumer watchdog group for attempting to cap credit card late fees at $8 a month, claiming the agency “exceeded its statutory authority.” In 2023, it sued the Biden administration over provisions for Medicare price negotiations in the Inflation Reduction Act, claiming the move would consolidate “unfettered and unchecked power” to the department of Health and Human Services.

But under Trump’s second term, the Chamber has had little to say publicly about Trump’s aggressive meddling in the private sector.

So what gives here? There’s no real mystery for anyone who actually spent much time working with the business community. As a group, businesses are, of course, risk-averse; but the dirty-little secret is that much of what passes for “pro-business” is often “pro-some-businesses”, and not at all “pro-free market.” Despite the rhetoric about slashing the “regulatory state,” many large businesses have grown fat and comfortable with regulations that protect them from competition. And the economy is littered with corporate welfare queens.

In other words, American business has no objections to crony capitalism as long as they are the cronies. As it turns out, they also have few objections to a state-run economy if they think they will be the beneficiaries of a beneficent regime.

**

Abandoned by the GOP, free market ideology risks becoming a political orphan, especially as Democrats continue to swoon over the hotness of the party’s Socialist candidate for mayor in New York.

This will lead to next year’s great cognitive dissonance: as Republicans accuse the Democrats of being socialists — even as the Trumpist GOP seizes the means of production.

Nota bene

“In Virginia’s Governor Race, a Democrat Strives to Be the Anti-Mamdani” - WSJ

But the most important message Spanberger sends, in an election that will be closely scrutinized as a bellwether of the second Trump presidency, could be to Democrats. The nomination of a democratic socialist, Zohran Mamdani, for mayor of New York City has seeded a narrative that the party’s left wing is on the march—a narrative that Republicans have eagerly embraced to paint Democrats as radical.

With polls showing her well ahead of her Republican opponent, Spanberger is heavily favored to flip the blue state’s governorship back to the Democratic column after four years of Gov. Glenn Youngkin, who cannot run for re-election. Virginia is the only state that limits governors to a single four-year term.

As the Democratic Party wrestles with historic unpopularity and a post-2024 identity crisis, moderate Democrats point to Spanberger, a self-styled pragmatist, as a more politically viable face for the party than the likes of Mamdani.

Monday dogs

Piano boy.

1. After the 2008 election of Barack Obama, General Electric's CEO, Jeffrey Immelt, wrote that the Democratic victories that year meant the economy had been “reset.”

“ Interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a Finn and Seer, and a key partner.”

2. Writes Sonnenfeld:

During the 2008 Great Financial Crisis, the federal government was compelled to rescue key companies vital to the nation’s economy, such as General Motors, Chrysler, Citigroup, and AIG, from the verge of collapse. The U.S. took equity stakes in these private organizations with extreme apprehension, even going so far as to encourage the companies to repurchase their equity as soon as possible. President Obama characterized the situation as: “We are acting as a reluctant shareholder because this is the only way to help [General Motors] succeed.” Fortunately, estimates found that the government recovered all, or nearly all, the $450 billion in Troubled Asset Relief Program (TARP) dollars by 2014.

3. Rattner goes on:

His capriciousness is particularly visible in the semiconductor industry. In addition to his Intel invasion — a permanent stake rather than the temporary ownership we took in G.M. — Mr. Trump has also been busy burrowing into Nvidia, the world’s largest semiconductor company, whose chips are critical to the artificial intelligence boom. In April, Mr. Trump essentially barred Nvidia from exporting its H20 chips to China, only to relax those rules after the company agreed to turn over 15 percent of those revenues to the government. (That may violate the constitutional ban on taxing exports.)

Along similar lines, Mr. Trump didn’t allow Nippon Steel’s proposed acquisition of U.S. Steel to go through until the government was granted a “golden share” giving Washington a veto over a broad array of corporate actions, including determining employee salaries and changing the company’s name.