Recently, President Trump openly greased the rails for Microsoft to seek ownership of the American assets of the Chinese social media firm TikTok. His administration also attempted to arrange for a $765 million federal loan to the Eastman Kodak Corporation to help expand production of pharmaceutical chemicals.
In both cases, he did exactly what he’s always pledged to, which is to say take a hands-on approach to the American economy.
More importantly, though, without making any secret of it, the president has launched a new kind of capitalism. It is gatekeeper capitalism, and with it, America’s future prospects grow a bit dimmer.
The first part of the tale may be familiar, but it merits a short retelling. In 2016, Trump took the oath of office and, as promised, quickly initiated highly vocal and visible actions limiting the flow of people and goods into the country. Never bashful, he left no doubt about where he stood on walls, borders, and access to the U.S. consumer market, and he established himself as a highly visible gatekeeper to our commonwealth.
If America was to become great again, as Mr. Trump interpreted the phrase’s meaning, greatness would come about under the aegis of control. Early on, his administration attempted unsuccessfully to impose border taxes for the dual purpose of limiting the entry of foreign-made goods (especially those made by workers who earned less than their U.S. counterparts) and raising revenue to fund an oft-promised wall along the country’s southern border, which would, in turn, further limit the movement of people into the country.
Enamored with tariffs and committed to antique mercantilism, which argued that “winning” countries and people always export more than they import, Trump disregarded arguments about specialization and gains from trade (I note that I have a problem with my local Publix market; I buy its groceries but it does not buy my lectures). Taking sides in ongoing trade disputes, he imposed tariffs on Canadian dairy and timber products and then moved to tariffs on aluminum and steel imports, no matter the country of origin.
Referring to himself as “Tariff Man,” Trump regularly suggested to other national leaders that he worried they were shipping us too much. He did not acknowledge that our own deficit spending forces us to either import more than we export or do without. Constantly upset with China, he argued that tariffs were a way of getting even for selling U.S. consumers more than foreign citizens buy from us, along with less-benign issues such as failing to respect intellectual property rights. Trump then imposed a series of tariffs on a large array of Chinese-produced consumer goods.
So, paradoxically, the president sought retribution by enthusiastically imposing costs on U.S. consumers by raising the prices on the goods they buy. Still, such sentiment has been commonplace throughout our long history. What followed has a more limited legacy.
In order to make such all-encompassing tariffs work, the administration developed a highly visible process for businesses and individuals to petition for waivers. The process only enhanced its gatekeeping function and the political value of the role. Thus, the attendant private-party efforts to avoid paying tariffs or gain a competitive advantage through political means accelerated, and so, too, did gatekeeper capitalism.
Of course, Trump has never presented himself as a free trader and has not spoken enthusiastically about capitalism and market-based economies. He is not much of an ideologue. Instead, finding himself politically unchallenged and seeing himself as the holder of the keys to the kingdom, he has enlarged his gatekeeper role to include actions that have smacked of crony capitalism.
That brings us to Microsoft and TikTok, talks which emerged as Trump declared that the Chinese firm had to sell or vacate the premises. As keeper of the kingdom’s gate, he also notified the negotiators that should a sales contract emerge, the Chinese parent company would have to make a sizable payment to the United States. Treasury for services rendered. America, Inc. seems to be emerging in the office of the president.
In the spirit of this new capitalism, the administration has also been focusing on Eastman Kodak and on redirecting the production of petrochemicals from India and China to the U.S. Officials argue that doing so would enable us to close the gate to foreign-produced pharmaceutical products and improve national security. The deal now appears to be in question because of “alleged wrongdoing” by executives who made securities transactions after learning of it. If substantiated, it wouldn’t be the first time favoritism bled into the private sector. Why would we expect otherwise?
In the same week, Trump announced that he was imposing a new 10% tariff on Canadian-produced aluminum, despite having earlier celebrated victory for concluding a U.S.-Canada-Mexico free trade agreement that apparently contained enough weasel words to allow for his action. Once again, nothing was done quietly or in hiding. Trump is a highly visible and vocal gatekeeper.
When running for president, Trump made other promises that he’s mostly kept. If elected, he would reduce taxes, deregulate, expand defense, bring American troops home, and “drain the swamp” by reducing the role of the federal government in the lives of ordinary people. And in his almost four years in office, he has led an effort that resulted in a major tax cut, instituted a meaningful reduction in regulatory activity, expanded defense, worked to reduce the number of U.S. troops in other countries, and engaged in many anti-establishment skirmishes that some might interpret as swamp-draining activities.
All of these kept promises are controversial and subject to criticism, of course. The point is that he never pledged to work to improve competitiveness within the U.S. economy and strengthen the American free market system. If anything, he pledged to be the gatekeeper.
Unlike previous presidents, who perhaps have done their gatekeeping under wraps, the president has openly monopolized control of what enters our economy, enhanced presidential powers to enrich political favorites, and proudly and openly hoisted his control of the keys to the kingdom to a new height. He has, in effect, given a new meaning to American capitalism in plain view.
America’s future prosperity depends on an openly competitive economy without presidential or other gatekeepers who are empowered to name and reward winners and punish political losers. As founder and second President John Adams said, we need “a government of laws, not men.”
Although transparent, Trump’s gatekeeper capitalism is a move in the wrong direction. Let’s recognize it for what it is. It should be discouraged.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
