The Trump administration has made broad interpretations of existing legislative authority to make unilateral policy moves.

 

Let’s examine how centralized decision-making raises concerns and the implications for the global economy.

 

The Trump administration introduced actions that moves the U.S. government closer toto private enterprises. These range from direct investment in select U.S. chipmakers and mining companies to revenue participation in exports of strategic assets.

 

The administration has also sought to use tariffs to influence supply chain management across the entire private sector.

 

While many have label such actions as “unprecedented” and “government overreach”, the important context and the significant implications for future government action have not fully been considered.

 

Unprecedented ? Not Really.

 

The U.S. has taken stakes in private entities in the past, most recently in response to the global financial crisis, and has even directly operated private assets, such as President Harry S. Truman’s decision to take over steel mills during the Korean War.

 

There are fewer similarities for the Trump administration’s idea to take a cut of sales on newly licensed chip exports to China,.

 

The U.S. government has historically used overseas arms sales to bring down the per unit cost of key weapons systems used by the U.S. military. It’s a different structure from a revenue-sharing arrangement, but the bottom line is the same: more export licenses, more cash in the bank.

 

So, is the question of government overreach more political than economic ?

 

One can certainly come down on both sides of the economic and strategic tradeoffs involved with government ownership of productive assets in key sectors.

 

This line of thinking may overlook the many ways in which long-standing government powers are tantamount to partial U.S. ownership of many private endeavors.

 

Take individual investors who buy stocks.

 

For shareholders, rights and privileges largely boil down to percentage participation in the company’s earnings, a right to vote on major corporate decisions, and a right to vote for the board of directors.

 

Is the U.S. government really in a very different position? Consider the following….

 

• Economics: The U.S. gets a cut of earnings in the form of corporate taxes, and it gets that in cash. Private shareholders only receive dividends if the board of directors decides to pay them.
• Decisions: Federal officials don’t directly vote on a merger or acquisition, but they have significant ability to reject or modify deals under antitrust rules.
• Influence: The government doesn’t currently appoint management, it can use its regulatory and fiscal tools to heavily influence corporate strategy.

 

While the U.S. may not have an explicit stake in private companies, but the rights and powers it does have the government in the realm of ownership.

 

However, when it comes to process, that’s where one may see a radical change.

 

The Trump Whitehouse has used broad interpretations of legislative authority to make unilateral policy moves. In many cases, this has led to the exertion of control over private companies and / or contracts.

 

This type of ad hoc decision-making raises two major, related structural concerns:

 

1. Not all are winners: Even a sound decision maker is going to have an occasional stumble. Japan’s Ministry of International Trade and Industry achieved fame in the U.S. for its role in promoting Japan’s auto industry. The same agency’s attempt to block Sony from using transistor technology, raising the specter of a Walkman-less 1980s.

 

2. The changes in “democracy”: The next administration can use the same techniques to switch goals and promote contradictory policy. Take the nearly completed wind farms that the administration effectively cancelled.

 

The worst-case scenario for the economy is to make the investment but never reap the benefits. Conversely, future administrations could cancel pipeline or bridge permits.

 

How could economic policy framework can evolve from here ? :

 

• New business as usual: If this process becomes the new normal, headwinds to large-scale economic investment.
• The Supreme Court (SCOTUS): It’s notable that many of the president’s actions have only proceeded based on the Supreme Court allowing him to act while legal challenges move through the lower court system. If the Court ultimately rules against the administration, this could largely foreclose future administrations using these tools.
• Lochner: In the early 20th century, the Court was in its so-called Lochner era, where it intervened consistently in economic policy. The period is now widely viewed as judicial overreach, but the Court retains the power to return to that framework and pass through only economic decisions it agrees with.
• Congressional action: While in many ways the most constitutionally robust, we think this outcome is effectively impossible given current political realities. Where to next? For investors, the issues raised by centralized decision-making are easy to ignore for now, in our opinion.

 

There is uncertainty on how the Court will rule, and the long-term consequences will depend both on electoral results and how future presidents choose to exercise—or not—the authority the current administration claims.

 

If you have any questions or comments, please do not hesitate to let me know.