By Greg Ip
Last week Nvidia finally got permission to sell one its most advanced semiconductor chips to China. The catch: The federal government will take 25% of the revenue from those sales.
The Nvidia deal says something important about the relationship between business and government under President Trump. His regular intrusions into the boardroom -- taking equity stakes, revenue slices or a "golden share"; prodding companies to lower prices or sell drugs through a federal website -- are a sort of state capitalism, in which the state doesn't necessarily own companies, but uses its substantial leverage to steer their behavior.
State capitalism is a two-way street. Many businesses, by aligning themselves with Trump's agenda, elicit better treatment -- in their ability to sell to China, the tariffs they pay, how they are regulated, and what mergers are allowed. In other words, state capitalism doesn't just serve the interests of the state, but of favored capitalists.
Nvidia is, in effect, paying for a license that used to be free, but it hasn't objected. After all, it's getting access to a lucrative market that would otherwise be off-limits. In August, shortly after Trump first proposed a 15% cut, chief executive Jensen Huang told an interviewer: "Whatever it takes to get it approved for us to be able to sell in China, is fine with us."
Whether this cozy relationship between the state and selected capitalists is good for the country is another question.
State capitalism is neither socialism, in which the government owns the means of production, or laissez-faire capitalism. It's more of a hybrid, variants of which have long been commonplace outside the U.S. Once popular in Japan and Western Europe, it remains prominent in China, Russia and other countries to varying degrees.
In the U.S., taking stakes in companies or commandeering their production was once limited to wars or emergencies such as the financial crisis and Covid. Trump has made it standard practice.
"I think we should take stakes in companies," Trump told The Wall Street Journal last week. "Now, some people would say that doesn't sound very American. Actually, I think it is very American."
Privately, many business leaders recoil from Trump's intrusions, just as they deplore his attacks on the Federal Reserve and on law firms and media companies that cross him. Publicly, they are mostly silent, or even supportive.
The reasons are complex. Fear is one reason. Solidarity with the president's broader agenda is another. After former President Joe Biden's regulatory and enforcement onslaught, many are thrilled with Trump's business-friendly appointments. He is rolling back business regulations and oversight, waving through more mergers, and signing business tax cuts into law.
Most would prefer a government that is both light-touch and arm's length. With Trump, that's not really an option. So many seek to work with him and his inner circle closely on their most important goals.
Pfizer, for example, agreed to lower prices on some drugs for U.S. buyers, sell some through a federal portal dubbed TrumpRx and invest in U.S. manufacturing, in return for relief from tariffs. At a White House event, Pfizer CEO Albert Bourla thanked Trump and promised the "historic" agreement would meet the demands Trump had set out to lower drug costs.
Staying on Trump's good side also didn't hurt when Pfizer found itself in a bidding war for Metsera, an anti-obesity drug startup, against Denmark's Novo Nordisk. Mike Davis, a Republican legal activist with close connections to Trump's inner circle, demanded in an op-ed that Trump and the Federal Trade Commission "not stand by while a foreign company [Novo] attempts to circumvent our government's necessary antitrust oversight."
The FTC then raised concerns about how Novo structured its bid, prompting Metsera to sell itself to Pfizer. The FTC did "what they thought was the right thing to do and has nothing to do with my relations with the Trump administration," Bourla said on CNBC.
The alignment between state and capitalists has been most evident in the pursuit of artificial intelligence. Silicon Valley and Trump are united in their conviction that the AI race is crucial to sustaining U.S. economic growth and strategic leadership over China.
From the get-go, Silicon Valley threw its support behind Trump. Top executives attended his inauguration. At the White House the next day, the president announced a $500 billion AI infrastructure project dubbed Stargate led by OpenAI, Oracle and SoftBank.
Trump has, meanwhile, strongly backed the industry's priorities. He repealed Biden's AI guidance on national security and public health, and has pushed for more energy to meet AI's ravenous electricity needs. Last week, Trump signed an executive order to punish states that regulate AI. Key tech imports, including Nvidia's chips and Apple's iPhones, have so far been largely spared tariffs.
Beyond simply boosting the industry, the Trump administration is participating alongside it. Shortly after Trump demanded, and got, a 10% equity stake in Intel, Nvidia also invested in the company, a supplier and potential competitor.
That was just one of the many "circular" deals that have blurred the lines between competitors, customers and in some cases, the federal government itself. Nvidia has also invested in OpenAI, Anthropic and xAI, all of whom use Nvidia chips. Microsoft, which provides computing power to OpenAI and Anthropic, has invested in both. SoftBank has invested in OpenAI, and OpenAI has a warrant for shares of AMD, a competitor to Nvidia.
It bears a passing resemblance to the interlocking ownership that once characterized the Japanese economy. On the one hand, cooperation among key AI players could turbocharge investment and keep the U.S. ahead of China. On the other, it could raise barriers to outsiders to the detriment of competition and innovation.
AI's circular deals "are not straight acquisitions, they are more like partnerships and co-investments," said Doha Mekki, who served in the Justice Department's antitrust division in the first Trump and Biden administrations. But "if you diagram them out, they start to look trust-like in their combinations," a reference to the corporate entities targeted by the first antitrust laws. "The antitrust agencies should be asking questions about the relationships."
So far, competition in AI looks pretty healthy. And the Justice Department says it is on the lookout for anticompetitive behavior.
In the grander scheme, though, the administration cares more about building national champions that can compete abroad than preserving competition at home. It allowed Hewlett Packard Enterprise to acquire rival Juniper Networks, over the objections of Justice Department antitrust staffers. The apparent rationale: The combined company would be a stronger competitor to China's Huawei. Google parent Alphabet's $32 billion acquisition of cybersecurity startup Wiz, which Biden appointees would likely have opposed, appears headed for approval.
If AI is, as widely feared, a bubble, its bursting would jeopardize the capital that finances data centers and U.S. economic growth. Cognizant of these risks, some in Silicon Valley think Washington should stand behind the industry, as it once stood behind the banks. OpenAI has called for federal "grants, cost-sharing agreements, loans, or loan guarantees to expand industrial base capacity and resilience."
No company fits the national champion profile better than Nvidia, which has a commanding market share in the graphical processing units used in AI model training and inference.
Both the Biden and, at first, Trump administration blocked Nvidia from selling many of its most advanced chips to China. With AI prowess seen as critical to economic and military dominance, the restrictions were intended to slow the advance of top Chinese AI modelers such as DeepSeek.
Huang met repeatedly with Trump and other officials and went to Capitol Hill. He argued that allowing sales would secure U.S. leadership by keeping Chinese developers dependent on an American "tech stack." Without U.S. chips, he said earlier this month at the Center for Strategic and International Studies, "they're going to go build their own complete stack. Once they've built that entire complete stack, they'll export it as quickly as you could imagine."
Inside the White House, tech adviser David Sacks made the same argument, drawing parallels to how Huawei leapfrogged Western companies to take the lead in 5G telecommunications. He wrote on X: "China is exporting Huawei chips + DeepSeek models to the Global South. If we don't make it just as easy to export the American AI stack, we will forfeit this technology race in large parts of the world."
Before Trump, Biden had already embraced industrial policy -- government support for favored sectors. He signed the bipartisan CHIPS Act, which funneled billions of dollars in grants to Intel and others to build facilities that could fabricate advanced chips, such as Nvidia's.
But unlike Biden, Trump has asserted that Washington should extract value from private companies that need its help. The administration has taken stakes in companies with which it has arranged contracts and loans to boost the supply of critical minerals. Secretary of the Interior Doug Burgum told the Journal Friday those stakes will initially be held by a sovereign-wealth fund.
Trump converted the Intel grant to equity. Despite the dilution to existing shareholders, Intel shares rose. Investors are betting the federal government would steer business to Intel, much as Beijing does for its national champions.
Huang's and Sacks' view on Nvidia's chip sales to China may well have prevailed over opponents on their own merits. Still, the 25% sales share probably helped.
(MORE TO FOLLOW) Dow Jones Newswires
December 15, 2025 21:00 ET (02:00 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments