It is tempting to frame the Sino-American economic rivalry as a clash between engineering doers and lawyerly naysayers, as the Chinese-Canadian analyst Dan Wang does in his new book Breakneck: China’s Quest to Engineer the Future. This is a false dichotomy, because law is a crucial feature of US capitalism.
We have heard the lawyers-versus-engineers argument before. Forty years ago, Japan’s economic rise induced similar anxieties, most famously articulated in US sociologist Ezra Vogel’s book Japan as Number One: Lessons for America.
Commentators fretted that the US was mired in lawsuits while Japan’s best minds were solving problems and driving their country’s meteoric growth. Yet over the ensuing decades, the US, with its mammoth legal industry, outperformed Japan by a wide margin.
Illustration: Yusha
Today’s panic about an Asian economic challenger is equally unwarranted and counterproductive. Invoking national security and the competition with China, US President Donald Trump’s administration is pursuing increasingly anti-capitalist and legally dubious interventions into private industry, with potentially high costs for US dynamism.
Consider the whirlwind of deals struck this summer. Just 11 days after Intel CEO Lip-Bu Tan (陳立武) met with Trump, the White House announced that the US government had taken a 10 percent stake in the company.
The Trump administration also secured a “golden share” in US Steel as a condition of its sale to Nippon Steel; forged a multibillion-dollar partnership between the Pentagon and the rare earth producer MP Materials; and negotiated revenue-sharing agreements with the tech firms Nvidia and Advanced Micro Devices Inc (AMD) in exchange for easing export restrictions. Apple, for its part, pledged another US$100 billion in US investment in return for tariff relief.
None of these startling moves was approved by the US Congress, nor have any been challenged in court. Corporate America has remained silent, apparently cowed by Trump’s intimidation of universities, law firms and other institutions. While the speed of the dealmaking could be seen as a virtue, it is better understood as a warning sign, because such interventions rest on shaky legal foundations.
Consider the “golden share” the US government has taken in US Steel. The Trump administration justified its intervention by channeling it through the Committee on Foreign Investment in the United States (CFIUS), which is empowered to review foreign takeovers that might threaten national security. Yet the conditions of the deal — protecting worker salaries, blocking a headquarters move and mandating new capital investment — suggest that it is less a matter of security than an opportunistic use of the CFIUS process to advance powerful steelworker unions’ interests.
Similarly, the US government’s investment in the rare earths firm MP Materials relied on an expansive reading of the Cold War-era Defense Production Act.
Critics said that the administration used emergency powers to sidestep standard federal procurement and contracting requirements.
In the same vein, the revenue-sharing arrangements with tech firms Nvidia and AMD very much resemble an export tax that could be challenged as unconstitutional. Even if the Trump administration were to say that these sales fall outside the definition of “exports,” because the chips are manufactured in Taiwan, it would still face a formidable statutory obstacle: the Export Control Reform Act of 2018 explicitly bars the US government from charging fees in exchange for export licenses.
The Intel deal is no less contentious. The CHIPS and Science Act provided incentives for the construction of new semiconductor fabrication plants in the US, yet Intel has won exemptions from some of those obligations in exchange for granting the government an equity stake.
Critics also point to potential conflicts with other federal statutes that prohibit agencies from acquiring equity stakes without explicit congressional authorization.
The administration’s unprecedented investments in private businesses outside of a national crisis require a clear mandate from the US Congress, they said.
These are not mere technical quibbles. The lawless state capitalism that Trump is forging introduces significant risks. If companies start to expect bailouts or special favors, they might engage in more reckless behavior. Moreover, capital might be steered not toward the best ideas, but toward politically connected projects. Managers might find their planning disrupted by the White House’s unpredictable whims. And investors might stay on the sidelines, knowing that their returns could be sacrificed for political priorities.
Intel itself quietly sounded the alarm in its Securities and Exchange Commission filing after the deal, warning that, given the lack of precedent, “it is difficult to foresee all the potential consequences” of the government becoming a significant shareholder of a private company. Translation: “This could end badly.”
China’s own record indicates that state capitalism, while capable of mobilizing resources to deliver infrastructure and promote growth, also creates serious pathologies. It has bred rampant corruption, waste and periodic crackdowns that undermine confidence in the very sectors the government seeks to promote. The US risks reproducing these dysfunctions if it follows the same path.
To be sure, the US urgently needs to channel resources into infrastructure, manufacturing and innovation, and excessive proceduralism could hinder investment and impede responses to national security threats. Worthy policy objectives must be pursued within the bounds of law and through transparent processes, not by an executive branch that makes up rules on the fly, cuts opaque deals with favored firms and erodes the predictability that underpins US markets.
The rule of law, imperfect though it might be, provides a necessary degree of predictability and accountability for market and government actors. Jettisoning it in the name of winning the geopolitical rivalry with China might only undermine a key source of US strength.
Curtis J. Milhaupt is professor of law at Stanford Law School and a senior fellow, by courtesy, at the Freeman Spogli Institute for International Studies at Stanford University. Angela Huyue Zhang, professor of law at the University of Southern California, is the author, most recently, of High Wire: How China Regulates Big Tech and Governs Its Economy (Oxford University Press, 2024).
Copyright: Project Syndicate
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