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America Is Adopting a Risky Model
Jami Miscik, Peter Orszag, and Theodore Bunzel
March 10, 2026JAMI MISCIK is Senior Adviser at Lazard Geopolitical Advisory. She was CEO of Kissinger Associates and previously served as Deputy Director for Intelligence at the CIA.
PETER ORSZAG is CEO and Chairman of Lazard and was director of the Office of Management and Budget in the Obama administration.
THEODORE BUNZEL is Managing Director and head of Lazard Geopolitical Advisory. He has worked in the political section of the U.S. Embassy in Moscow and at the U.S. Treasury Department.
The relationship between governments and business is fundamentally changing. As geopolitical tensions have increased and economic warfare has become central to international competition, policymakers around the world have developed new export control systems, investment screening mechanisms, and subsidization schemes to protect their markets and reshore critical industries. All these policies require the participation of companies, and their success depends on the decisions made by corporate actors. More and more, governments have seen a need to compel changes in corporate behavior to achieve their foreign policy aims—in effect, to dabble in state capitalism.
That shift has been in the works for some time. But now, governments are intervening in business—including in other countries’ businesses—on a new level. The U.S. government is claiming stakes in domestic critical minerals projects to secure its supply of these resources. In September, the Dutch government seized the Netherlands-headquartered but Chinese-owned semiconductor company Nexperia in part out of a fear it would siphon off intellectual property and production to China. Last year, the Chinese government announced a series of antitrust investigations into U.S. tech giants, threatening their access to the Chinese market, to gain leverage over Washington in trade negotiations. And the more governments today deploy such tactics, the more difficult it will be for their successors to shelve the new playbook.
This is not just a change in intensity but also a change in kind. The earlier iteration of state capitalism, which we wrote about in 2024 in Foreign Affairs, largely took the form of rules-based industrial policy. Today’s is a more discretionary state capitalism, and it will have lasting consequences. Direct, transactional government intervention in companies to secure critical industries and serve other policy ends will inevitably lead to favoritism, inefficiency, higher costs, and lower growth. Frontier companies are already pulling away from their competitors; discretionary intervention may further increase market concentration and widen the gap between the large incumbents and industry champions that benefit from government deals and access and the companies that do not.
Even for the businesses that benefit, the new discretionary state capitalism is a mixed blessing. They will face rising uncertainty and risk falling into governments’ cross hairs as everything from antitrust approvals to international mergers and acquisitions becomes less subject to predictable rules and more subject to the whim of political processes. Governments, meanwhile, may be eager to use the full range of tools available to them, but a heavy-handed, volatile state can quickly dampen economic activity and competition. Discretionary policymaking can distort corporate behavior, pushing companies to focus less on productivity and more on lobbying for political favor. And perhaps most important, a government will not succeed in securing its country’s economic future through investment in critical technology and manufacturing unless it also addresses underlying constraints, such as labor availability, skills gaps, or a burdensome regulatory environment. Economic history is littered with experiments in state capitalism that ended in failure, including U.S. price controls in the 1970s, which contributed to energy shortages and did little to tame inflation, and the 1975 nationalization of British Leyland Motor Corporation, which struggled mightily despite billions in government investment and was eventually dissolved. Policymakers keen on muscular intervention today must tread carefully or risk meeting the same fate.
SOMETHING NEW UNDER THE SUN
Government intrusion in markets is nothing new. Globally, the number of new restrictions placed each year on trade in goods, services, and investments increased fivefold between 2015 and 2025 as governments sought to both reduce dependencies that other countries could exploit and enhance their own competitiveness in clean energy, biotechnology, and other critical industries. Subsidization schemes for strategic sectors have proliferated over the past decade, too. As a result, trade and foreign direct investment have steadily fragmented, channeled toward either Western- or China-dominated blocs, and total trade has plateaued as a percentage of global GDP.
Then, in the past year, upheavals including a global trade war, Chinese restrictions on critical mineral exports, and trouble in the transatlantic alliance have pushed countries to arm themselves more quickly with new economic tools. The Trump administration took the lead, tearing up its predecessor’s industrial policy and advancing its own strategy aimed at reshoring manufacturing, raising revenue, and bringing down prices for consumers. Out went new export control regimes on advanced technology, detailed contracts to grant subsidies to semiconductor companies under the 2022 CHIPS Act, and complicated tax credits to promote clean energy in the 2022 Inflation Reduction Act. In came equity stakes and “golden shares”—which give the government influence over critical business decisions—in U.S. metals and technology companies, demands that pharmaceutical and credit card companies lower their prices, orders to defense companies to halt dividends and share buybacks and redirect the money toward new production plants, and deals with U.S. firms to export technology to China in exchange for fees paid to the U.S. government. The White House has also pursued greater influence over independent regulators and executive branch agencies. By seeking more of a direct say over regulatory approvals and enforcement, the administration is effectively causing agencies to deprioritize traditional metrics of market concentration in antitrust assessments and national security concerns in foreign investment screening as they give the White House greater leeway to use both processes to advance its policy agenda.
This playbook may seem idiosyncratic to the current administration. Striking an agreement with Nvidia that will allow the company to sell its advanced AI chip, the H200, to China for a 25 percent export fee paid to the U.S. government has the markings of a self-professed dealmaker such as U.S. President Donald Trump looking for financial upside—even if it may be an unusual way to raise government revenues. The White House’s use of tariff threats to force electronics and semiconductor firms such as Apple and Taiwan Semiconductor Manufacturing Company to pledge to invest in the United States is in character for Trump, too; the president has said that “tariff” is “the most beautiful word in the English language.”
But the attitudes driving a turn toward discretionary state capitalism are not confined to the United States and will outlast the current administration in Washington. Geopolitical competition, economic fragmentation, and the weaponization of dependence on critical goods have reduced many governments’ willingness to let markets drive outcomes that may leave them vulnerable to supply chain disruptions or export bans. And as traditional rules and norms break down, one country’s turn toward state intervention prompts others to reach for more muscular tactics. Germany’s finance minister, for example, has called for “European patriotism” in response to U.S. tariffs and Chinese export surges, proposing in January that European companies receiving state aid be required to keep jobs on the continent and that public procurement prioritize European goods.
A heavy-handed, volatile state can quickly dampen economic activity and competition.
The executive’s expansive, discretionary use of regulatory authorities such as foreign investment screening and antitrust enforcement is also likely to endure. The erosion of regulatory independence is difficult to reverse. In the United States, the Supreme Court appears set to uphold the Trump administration’s dismissal of Democratic commissioners at the Federal Trade Commission and the National Labor Relations Board, placing previously independent agencies and the decisions they make about antitrust approvals for mergers and acquisitions, for example, more firmly in the executive’s control. Other countries will likely respond by adopting more flexible interpretations of transaction approvals to protect their own critical industries.
Consider foreign investment screening. In the United States, the interagency Committee on Foreign Investment in the United States is statutorily tasked with reviewing whether business deals involving foreign entities pose unacceptable national security risks. When the Biden administration’s CFIUS failed to approve the acquisition of U.S. Steel by Japan’s Nippon Steel in 2024, however, it seemed to prioritize protecting the domestic steel industry in an election year instead—surely, any acquisition by as close an ally as Japan posed little actual threat to national security. (Biden ultimately blocked the deal in January 2025 after CFIUS did not reach a consensus.) The Trump administration further pushed the bounds of CFIUS’s mandate by approving the U.S. Steel deal under the condition that the U.S. government receive a “golden share” in the company, enabling it to veto major decisions about factory locations and investment. Now that it is on the table, future administrations will not want to surrender the option to wield CFIUS to block or condition foreign acquisitions to achieve their own domestic policy ends.
Other countries are engaging in greater discretionary scrutiny of foreign investments, too. Late last year, the European Union announced a new foreign investment screening program that will expand mandatory reviews across member states and give Brussels greater influence over approvals for foreign investment in “strategic” sectors including digital infrastructure and critical technology. Japan is also planning to update its foreign investment screening by adding a process similar to CFIUS reviews and expanding the number of sectors under scrutiny. Last year, the Japanese economic minister even warned that a potential takeover of Seven & i—the operator of 7-11 convenience stores—by a Canadian company would be “heavily related” to “national security” and thus vulnerable to a government veto. (The deal ultimately fell through for other reasons.)
Antitrust authorities traditionally assess mergers by considering analytical measures of market concentration and the potential for consumer harm; now, the mandate to prevent monopolies may take a backseat to other policy goals. The Biden administration, again, cracked the door open to that kind of approach to antitrust enforcement when its appointees to the Federal Trade Commission sought to prevent mergers as a matter of course, including when the negative effect on consumer prices and welfare was difficult to discern. But the Trump administration has sought an even greater say in the process, indicating through public statements that the president plans to weigh in on major antitrust decisions, such as the sale of Warner Bros. Discovery to Paramount, rather than leave those decisions solely to independent regulators at the FTC and Justice Department. The companies involved will still have the option of appealing the government’s decision and letting the courts decide. But this type of political intervention may well persist. It is possible to imagine a future Democratic administration, for instance, attempting to block a merger out of concerns about climate risk or social inequality, or to limit the power of an industry it regards with suspicion, such as cryptocurrency.
Economic history is littered with failed experiments in state capitalism.
These developments in the United States align with a growing global norm. The Chinese government, for example, has been using its State Administration for Market Regulation for geopolitical ends for years. The body failed to approve the U.S.-based semiconductor producer Intel’s acquisition of the Israeli firm Tower Semiconductor in 2022 and therefore tanked the deal, and last year it initiated investigations of the U.S. companies Qualcomm, Nvidia, and Google amid heightened tensions between Beijing and Washington. Even Europe, in some ways the last adherent to the rules-based economic order, is getting into the game: the EU’s anti-coercion instrument, adopted in 2023, grants Brussels wide authority to block investment and mergers and acquisitions if invoked by a qualified majority of member states. Brussels threatened to use this tool against the United States during the recent standoff with the United States over Greenland.
The pressure to reduce dependence on critical goods from abroad and to bolster economic competitiveness is also compelling governments to play a more direct role in deploying capital to specific companies and investment projects. This is especially true in niche industries in which competitive markets do not exist and subsidies alone may be insufficient to create them. Critical minerals are the clearest example; the Pentagon has recently invested $400 million in MP Materials and $620 million in Vulcan Elements to accelerate the mining and processing of rare-earth elements, which are used in everything from automobiles to semiconductors and whose supply is nearly monopolized by China. But this industry is one of many. The Trump administration took stakes in 14 companies in 2025, including ten percent stakes in Intel and Trilogy Metals (which mines zinc and copper). Japan’s government has capitalized Rapidus, its state-backed semiconductor champion, to rebuild the country’s chip manufacturing capacity. As countries realize their dependence on particular manufacturing inputs or pharmaceutical ingredients, or as new industries are deemed essential for global economic competitiveness, these approaches will only become more attractive. Governments in the United States and elsewhere, for instance, may seek to invest in certain clean energy technology companies to boost innovation and competitiveness in newly important sectors.
Such investments could even be made through new sovereign wealth funds, features of state capitalism that until now have rarely been used in developed capitalist economies such as the United States and Europe. The Biden administration explored the possibility of creating such a fund internally, and the Trump administration is now creating something that resembles one by steering nearly $1 trillion in investment pledges secured through trade agreements with Japan, South Korea, and others toward reshoring projects in the United States. (How much of those promised funds end up being delivered remains to be seen.)
Even the Trump administration’s practice of using regulatory pressure and economic incentives to secure anything from investment commitments to lower drug prices from individual companies may not end in 2029 or remain limited to the United States. A future Democratic administration could seek deals with energy companies to reduce fossil-fuel emissions in exchange for permitting or other concessions, backed by the threat of regulatory action or fines. The EU, meanwhile, recently struck an agreement with the car manufacturer Volkswagen to reduce tariffs on European imports of an electric vehicle it produces in China, in exchange for a minimum price floor and a commitment to invest in production in Europe.
COST ANALYSIS
The discretionary state capitalism that is now emerging carries clear economic tradeoffs. Most increases in state involvement in the economy, whether states follow rules or not, tend to reduce economic efficiency (the exception is intervention to address a market failure). The International Monetary Fund estimates that the misallocation of resources associated with Chinese industrial policies between 2009 and 2018, for example, lowered aggregate productivity by around 1.2 percent, which could have reduced China’s GDP by up to 2.0 percent. But when state intervention happens at the discretion of leaders rather than through predictable policies, the costs are likely to be even higher. Firm‑specific mandates distort capital allocation by elevating government priorities over market forces, and policies that undermine the rule of law and stability of institutions have been proven—including by 2024 Nobel Prize winners Daron Acemoglu, Simon Johnson, and James Robinson—to yield worse economic performance over time.
Less efficient supply chains reconfigured for political or security rather than economic reasons will mean higher prices. So will regulatory decisions and the deals governments make with individual firms that require (relatively) expensive domestic investments or sourcing. In a survey conducted by McKinsey, nearly 40 percent of firms reported higher supplier and material costs as a result of supply chain changes driven by U.S. tariffs in 2025. In the semiconductor sector, this pressure is already translating to higher prices: the CEO of the U.S. chip manufacturer AMD said in July that chips produced at Taiwan Semiconductor Manufacturing Company’s Arizona facility cost “more than five percent but less than 20 percent” more than equivalent chips made in Taiwan.
One country’s turn toward state intervention prompts others to reach for more muscular tactics.
As governments intervene more in strategic sectors, large incumbent firms—those with the access and capacity to negotiate bespoke arrangements—stand to gain the most. In the United States, the performance gap between large firms and small ones has already been widening dramatically: the difference in return on invested capital between the top- and bottom-quartile companies has roughly tripled over the past few decades, and “superstar” firms increasingly dominate sales and market share. Policymaking that derives from relationships between political and business leaders is likely to reinforce these trends. It also leaves the door open to favoritism and perhaps even corruption, which will further tilt the scales toward larger firms with the means and connections to influence policymaking.
Businesses that pursue agreements that support governments’ agendas will find new opportunities in the discretionary state capitalist model. The U.S. government’s drug-pricing deals with pharmaceutical firms Eli Lilly and Novo Nordisk lowered the cost of GLP-1 diabetes and weight-loss drugs for American consumers, but in exchange, both companies will benefit enormously from the addition of these drugs to Medicare coverage. Nvidia has promised $500 billion in U.S. investment and already invested $5 billion in the now government-backed Intel, but it also was able to secure approval from the Trump administration to sell hundreds of thousands of advanced AI chips to China and the Gulf. Other countries’ national champions, such as the AI company Mistral in France and the semiconductor equipment company Tokyo Electron in Japan, will surely manage to have their own requests granted by their governments, too.
But the risks for companies across the board are rising as well. International deals will face heightened scrutiny as geopolitical and policy considerations creep into approval processes, formally or otherwise, and governments introduce new mechanisms to screen foreign investment. Market access is likely to suffer as tactics used in one country inspire action abroad, raising protectionist barriers for all as countries seek to promote domestic champions and reduce dependence on foreign goods. And corporate CEOs may increasingly get caught in political crosswinds. Success in navigating the new style of policymaking requires political fluency, which means CEOs, rather than general counsels, will be leading government engagement, and companies will be expanding their presence in Washington and Brussels.
RESISTING TEMPTATION
Governments will be tempted to use their new tools to intervene in private business more and more, but effectively achieving their policy goals requires restraint. Interventions that are narrow in scope, transparent in process, and clear in their objectives will fare best. Efforts to set prices in competitive markets or designate national champions will often backfire. Japan, for example, set generous feed-in tariffs—above-market prices intended to promote development of a particular technology—for solar power in 2012, but the policy inflated project costs and weakened competitive pressure, locking in high prices and reducing market discipline and efficiency across the sector.
Government stakes in companies can sometimes be warranted. In the rare-earths sector, geographical complexity, China’s complete cornering of the industry, and the relatively small size of the market—currently only $6 billion—make Washington’s championing of individual firms more necessary because there are no competitive forces at work. But overusing this tool, especially in competitive markets, can be inefficient and sap innovation as state champions crowd out other contenders. Tearing up Intel’s carefully crafted CHIPS Act agreement in exchange for a ten percent stake for the U.S. government, for instance, threatens to distort the market by creating a large state-backed player in the highly sophisticated, nearly $1 trillion semiconductor industry—and it doesn’t even help generate demand for Intel’s chip fabrication business, which has struggled to secure customers.
Despite the temptation to throw the regulatory book at companies if they do not act to support the government’s agenda, policymakers should aim for collaboration over coercion. Intimidation and threats may compel corporate leaders to make commitments on paper, but they will seek ways to evade those promises in practice. Look no further than the investment pledges the Trump administration has secured from both countries and companies under the threat of tariffs. In November 2025, Bloomberg estimated that although the White House had claimed up to $21 trillion in new investment commitments, only about $7 trillion appeared to represent viable projects.
Governments must acknowledge, moreover, that reshoring manufacturing, building supply chain resilience, accelerating clean‑energy deployment, and reaching other ambitious policy goals cannot be accomplished simply by strong-arming business. All require a different kind of government involvement for success. What gets in the way of reshoring semiconductor production and other advanced manufacturing is not only the cost disadvantage that U.S. companies face but also a lack of skilled workers. Washington must shorten permitting timelines, accelerate upskilling to address labor shortages, and expedite infrastructure construction to reduce bottlenecks if it is to secure durable competitive advantages. Muscular intervention alone will deliver merely symbolic wins.
And, in the end, overzealous discretionary state capitalism will be self-defeating on its own terms. In their pursuit of geopolitical advantage—by bullying companies into reshoring, shielding domestic industry through regulatory cover, and boosting national champions with government stakes and investment—countries risk sapping the economic vitality that leads to enduring global strength. The reason why the United States and its partners in Europe and Asia have maintained a lead over China in the most innovative industries and host the world’s most economically productive companies is the dynamism of open markets and the predictability of the rule of law. Yes, more government intervention may be required in an increasingly Hobbesian international environment. But completely replacing a system of economic rules with the discretionary whims of politicians would be geopolitical malpractice.
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