Many of the issues that Trump-style economic nationalism seeks to address are not trivial matters. China is a serious strategic competitor. Supply chains for semiconductors, critical minerals, and weapons systems are important to national security and economic resilience. And conservatives are right to be frustrated by a federal government that cannot permit projects quickly, buy weapons efficiently, or maintain a serious industrial base without drowning it in red tape.

But identifying a legitimate problem does not mean heavy-handed government intervention is the solution, regardless of which political party controls the White House. Having Washington become investor, creditor, regulator, customer, and corporate overseer — a situation that conservatives would have rightly considered anathema until Trump took over the Republican Party — is a recipe for cronyism and economic sclerosis, not security.

The Biden administration’s industrial policy was bad enough. Through the CHIPS and Science Act and the Inflation Reduction Act, subsidies, tax credits, loans, and mandates were employed to push capital toward politically favored industries. Many Republicans criticized that approach as industrial planning, and they were right. Industrial policy can sound good on paper, but as corporate America is finding out, making business decisions based on government incentives subject to change from one administration to the next can easily backfire.

But instead of merely rolling back Biden administration interventions, the Trump administration has built on them by having the federal government take ad hoc ownership in a slate of American companies. It has done so randomly, in an opaque manner, and without regard for congressional input or constitutional concerns.

The administration and its supporters also apparently don’t care that a future Democratic administration can use the precedents being set and the equity stakes it inherits to engage in mischief. Indeed, were it a Democratic administration trying to concoct a pseudo-government investment fund for the president to play with, the outcry from self-described conservatives and congressional Republicans would be deafening.

The Biden model was Washington telling companies where it wanted capital to go. The Trump model has Washington supplying the capital in exchange for the power, leverage, and control that come with government ownership. So, while subsidies distort investment, federal ownership creates a deeper problem by forcing firms to make decisions based on political rather than market considerations.     

Once the federal government owns part of a company, every regulatory, procurement, tax, trade, antitrust, and permitting decision involving that company or its rivals becomes suspect. Is Washington enforcing neutral rules, or protecting its investment? Is a competitor being treated fairly, or punished for lacking the right political sponsor? Is the taxpayer being protected, or is a favored firm being propped up because officials do not want their deal to fail?

A government that owns the players cannot be trusted to call the game fairly. 

While a government investment can initially boost a company’s immediate prospects, taking a bite of the proverbial apple comes with consequences. Broadly speaking, firms may come to see the path to capital as running through Washington. As we almost witnessed with Spirit Airlines, ordinary commercial problems will be sold as a national security emergency. Bad investments will be packaged as strategic necessities. And executives (and their lobbyists) will discover that the right sales pitch is more important than the right business plan.

Traditional conservatives know this. But the Trump-rebranded right should understand that if the solution to every economic problem is tariffs, subsidies, loans, targeting tax breaks, and federal equity stakes, then it becomes impossible to critique the left’s interventions credibly.

They’ll just have a rival industrial policy. 

Republicans can’t denounce the government “picking winners and losers” when Democrats do it and then call it “deal-making” when Trump does it. They can’t warn that Democratic industrial policy is socialism while claiming that Trump’s industrial policy represents “America First.” And they certainly cannot credibly defend free enterprise while cheering federal ownership of private firms.

THE RIGHT WAY FORWARD: THE ROLE OF THE STATE IN THE ECONOMY

Markets discipline error while politics rewards influence. And once the federal government starts owning companies it regulates, subsidizes, and contracts with, that discipline begins to disappear. Conservatives used to make this argument when criticizing the left — and some still do.

But those self-described conservatives who jettisoned whatever principles they had for political fealty, and the money and influence that can come with it, will have zero credibility when the other team gets the chance to open the gifts the Trump administration left for them.

Tad DeHaven is a policy analyst on federal and state economic and fiscal policy issues for the Cato Institute.