The Trump Administration’s Venture Capitalist State

One of the defining features of the second Trump administration has been its pro-business agenda. President Trump regularly touts large foreign investment commitments in the U.S. Even Attorney General Pam Bondi recently praised the stock market performance during a Congressional hearing on the Justice Department. Public officials regularly offer wildly optimistic projections of economic growth, because this administration is pro-business after all… 

Cabinet officials emphasize business expansion, energy exploration, building, and investment at every turn. And Trump has filled his administration with highly successful businessmen. While this pro-business approach has some benefits, it also has several deficiencies and dangers. A better approach would be pro-market. 

Perhaps the most striking example of the business mindset in this administration is the creation of equity positions in private companies. Federal agencies have provided subsidized loans to companies in various industries for decades. These loans were distortionary and cronyist and often weren’t repaid. But as passive debt holders, government officials’ reach was capped; they lacked the structural leverage to dictate the internal operations of private firms. 

An equity position, however, gives government officials a great deal of influence over companies, especially when they insert “golden share” provisions, as they did when Nippon Steel acquired U.S. Steel. From a business perspective, taking equity if you can get it makes sense.  

Your upside is not limited to the way it is when you are merely a lender. A company can double or triple (or more) in value. But a loan can only be repaid with interest, usually at a rate below 10 percent. The logic of the venture capitalist—maximizing upside through equity—is sound for a private firm, but it is poisonous for a sovereign government. 

After all, government agencies create many of the industry’s rules. Obvious conflicts of interest arise when government agencies regulate the tech industry and the government owns a large stake in an individual tech company (Intel). In 2025, the federal government negotiated a nearly 10 percent stake (433.3 million shares) in Intel in exchange for what had previously been sizeable subsidies. The value of those shares had basically doubled with the increasing Intel stock price by February 2026, meaning the value of the government’s position has gone from about $9 billion to $19 billion.  

In Intel’s case, the government agreed not to take a seat on the board and to generally vote with the existing board. But it’s not hard to imagine regulatory agencies fast-tracking requests from Intel but not from its competitors. Or giving Intel a pass on some tariff or trade restriction, but not its competitors. In fact, when the Department of Commerce is also a major shareholder in Intel, the regulator and the regulated become a single entity. 

This is just as true for mineral companies in which the federal government has taken significant equity positions: MP Materials, Lithium Americas, Trilogy Metals, and Vulcan Elements. Not only can government officials influence the market unfairly, but they can also hinder innovation and competition within the industry. Venture capitalists and entrepreneurs will hesitate to launch a new mining or refining venture if their competitors have federal government financing and the implicit backing of regulators. 

The incentives of government officials are also not always aligned with the interests of the company or citizens. The temptation is to use this influence to reward political allies or advance the President’s agenda, rather than to serve the interests of shareholders or the public. Furthermore, competitive markets and creative destruction mean that some companies that appear to be on track to succeed can fail. 

Will government officials allow their sizeable investment positions to go to zero? It’s unlikely. Instead, they will continue to pour good money after bad to keep the enterprise afloat. The long history of government bailouts (Big Three auto companies, TARP, Fannie Mae and Freddie Mac, and the savings and loan crisis) suggests this is inevitable. 

Going back even further, we have a good case study of how extensive government engagement in industry ends badly. Consider the railroad-building boom of the mid- to late 1800s. Congress heavily subsidized several railroads to build a transcontinental line. The waste and corruption of this involvement were staggering – remember the Credit Mobilier scandal. Every major subsidized railroad eventually failed because it was more focused on its political connections and goals than on its customers or efficiency. J. J. Hill’s Great Northern Railroad, which refused all federal subsidies, was an exception. 

Certainly, focusing on economic growth and wealth creation is a positive shift from the previous administration. However, being pro-business rather than pro-market can lead to waste and corruption. It undermines the integrity of the market and provides grounds for critics of capitalism and business. There is still an opportunity for the Trump administration to change direction, but it requires doing less, not more. 

Being pro-market means exercising restraint and abandoning the “deal-making” mindset that so defines Trump. The odds of this correction coming directly from Trump are slim, but perhaps others in the administration and Congress can redirect his focus. The correction may not originate within the administration, but from the market itself. Eventually, the inefficiencies of political ‘winners’ will collide with the reality of global competition, potentially turning today’s ‘big deals’ into tomorrow’s bailouts. 

Although pro-market is, in a sense, pro-business, it is not in favor of any specific business. Some companies will succeed, and others will fail – but their outcome will be determined by the consumers, not by Washington. We want companies to be accountable to customers, not to politicians or to bureaucrats. This will drive innovation, creativity, and improvement. Pro-growth politicians and government officials should focus on regulatory reform, not on putting together big investment “deals.” 

Paul Mueller is a Senior Research Fellow at the American Institute for Economic Research.