Introduction
The economic competition between China and the United States is often framed as a battle between engineers and lawyers, as Dan Wang, a Chinese-Canadian analyst, argues in his new book “Breakneck: China’s Quest to Engineer the Future.” However, this dichotomy is misleading because the rule of law is a crucial characteristic of American capitalism.
Historical Context
Similar anxieties were raised four decades ago when Japan’s economic boom prompted concerns, as articulated in Ezra Vogel’s book “Japan as Number One: Lessons for America.” Commentators worried that the U.S., embroiled in legal disputes, was falling behind while Japan’s brightest minds were solving problems and driving rapid growth. Yet, over the following decades, the U.S., with its vast legal industry, surpassed Japan significantly.
Current Panic and Anti-Capitalist Interventions
The current panic over an Asian economic rival is equally unfounded and counterproductive. Invoking national security and competition with China, the Trump administration has increasingly implemented interventionist and legally dubious actions in private industry, potentially harming U.S. dynamism.
Summer’s Surge of Agreements
Just 11 days after Intel CEO Lip-Bu Tan met with Trump, the White House announced that the U.S. government had acquired a 10% stake in Intel.
- The administration secured a “golden share” in US Steel as a condition for its sale to Nippon Steel;
- Forged a multimillion-dollar partnership between the Pentagon and rare earths producer MP Materials;
- Negotiated revenue-sharing deals with chip manufacturers NVIDIA and AMD in exchange for easing export restrictions;
- Apple pledged another $100 billion in U.S. investments in exchange for tariff relief.
None of these striking measures were approved by Congress or challenged in court. U.S. businesses have remained silent, seemingly intimidated by Trump’s threats against universities, law firms, and other institutions.
Legal Basis of Interventions
The “golden share” the U.S. government took in US Steel was justified by channeling it through the Committee on Foreign Investments in the United States (CFIUS), which can review foreign acquisitions threatening national security. However, the agreement’s conditions—protecting workers’ wages, blocking headquarter transfers, and mandating new capital investments—suggest it’s more about promoting powerful steelworkers’ union interests than genuine national security concerns.
Similarly, the government’s investment in MP Materials, a rare earths company, was based on an expansive interpretation of the Cold War-era Defense Production Act. Critics argue that the administration used emergency powers to bypass regular federal procurement requirements.
The revenue-sharing agreements with chip manufacturers NVIDIA and AMD resemble an export tax that could be challenged as unconstitutional. Even if the administration argues these sales fall outside “exports” since chips are manufactured in Taiwan, it still faces a formidable legal hurdle: the Export Administration Reform Act of 2018 explicitly prohibits the government from charging tariffs for export licenses.
The Intel deal is equally contentious. The CHIPS and Science Act provided incentives for building new semiconductor manufacturing plants in the U.S., but Intel has secured exemptions from some of these obligations in exchange for granting the government a capital stake.
Critics also point to potential conflicts with other federal laws that prohibit agencies from acquiring stakes without explicit Congressional authorization. They argue that the administration’s unprecedented investments in private companies outside a national crisis require clear Congressional mandate.
Risks of State Capitalism Without Law
These are not mere technical objections. The lawless state capitalism Trump is creating introduces significant risks. Companies might start expecting bailouts or special favors, leading to reckless behavior. Capital could be directed not towards the best ideas but projects with political connections. Managers’ planning might be disrupted by the White House’s unpredictable whims, and investors may stay on the sidelines, knowing their profits could be sacrificed for political priorities.
Intel itself subtly sounded the alarm in its SEC statement following the agreement, warning that without precedents, “it is difficult to foresee all potential consequences” of the government becoming a significant shareholder in a private company. Translation: “This could go wrong.”
China’s history itself indicates that state capitalism, while capable of mobilizing resources for infrastructure and growth, also generates serious pathologies. It has bred rampant corruption, extravagance, and periodic repressive measures that undermine confidence in the same sectors the government aims to promote. The U.S. risks replicating these dysfunctions if it follows the same path.
Undoubtedly, the U.S. needs urgently to channel resources into infrastructure, manufacturing, and innovation, but excessive bureaucracy can hinder investment and complicate responses to national security threats. However, political goals should be pursued within legal bounds and through transparent processes, not by an executive branch inventing rules on the fly, closing opaque deals with favored companies, and eroding the predictability sustaining U.S. markets.
The rule of law, for all its imperfections, provides necessary predictability and accountability to market and government agents. Abandoning it in the name of geopolitical competition with China would only undermine a key source of U.S. strength.
About the Authors
Curtis J. Milhaupt
Curtis J. Milhaupt is a Professor of Law at Stanford Law School and a Freeman Spogli Institute for International Studies Senior Fellow at Stanford University.
Angela Huyue Zhang
Angela Huyue Zhang is a Professor of Law at the University of Southern California and the author, most recently, of “High Wire: How China Regulates Big Tech and Governs Its Economy” (Oxford University Press, 2024).
Copyright: Project Syndicate, 1995 – 2025
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