The “Mussolini Corporatism” Behind Trump’s Demand For $800 Billion From Japan and Korea

Trump Wants Cash To Buy Shares in Key US Companies and Dictate To Them

In the late 1930s, Benito Mussolini’s “corporate state” possessed the world’s highest rate of state-owned enterprises outside of the Soviet Union. Mussolini had a state institution under his control buy up shares of private companies, insisting that national security, including economic self-sufficiency in key sectors, required this control. Yet, his move left Italy in worse shape to wage war.

I’ve found no case of a Trump official publicly touting Mussolini as a model. Nor am I calling Trump a fascist, although he is certainly undermining democracy. Nonetheless, there is a striking resemblance in some economic measures. Trump, too, wants to create a mammoth fund to buy up shares in companies. He, too, claims national security requires his tariffs, government shares in corporations, and taking away funds for university research in science/technology areas. He, too, is reducing his country’s economic vitality.

Trump calls his fund the “Investment Accelerator,” and it’s located in the Commerce Department. The New York Times reported, “While little is known about the initiative…[Commerce Secretary Howard] Lutnick appears to be turning it into a fund that can collect foreign capital and negotiate equity stakes in companies. The investment vehicle can then direct those resources toward accomplishing Mr. Trump’s goals.”

Much of the foreign capital cited by the Times would come from Japan and perhaps Korea. Hence, his demand that Japan cough up $550 billion and Korea another $350 billion to invest in Trump-dictated projects and give the US government 90% of the profits. Japan acquiesced, while Korea is resisting, and the EU has simply refused. The latter only forecast private company investments. It is unclear whether Japan will really supply all of the $550 billion, especially in the way Trump demands. In any case, it’s worth examining the grand design behind Trump’s pressure on Tokyo and Seoul.

Trump Officials Talk About Acquiring Shares in Dozens of Companies

Days after Trump’s government took a 10% stake in Intel, his National Economic Council director, Kevin Hassett, called that takeover “a down payment on a sovereign wealth fund.” Notably, the Trump administration paid nothing for the shares. Instead, Trump called for the firing of Intel CEO Lip-Bu Tan because of alleged ties to the Chinese military. To save his job, Tan journeyed to the White House to “kiss the ring.” Trump demanded, and got, a 10% share in Intel by converting into government-held shares grants that had been made to Intel under Joseph Biden. Tan said he acquiesced lest Trump deny it billions of dollars contained in Biden’s CHIPS Act. Once the deal was sealed, Tan metamorphosed into a “highly respected CEO” in Trump’s next tweet.

Trump also demanded, and got, a 15% share of all the revenue Nvidia and AMD take in from their sales in China in exchange for getting licenses to sell their products in China despite any national security restrictions. Trump has already reversed a ban preventing the two companies from selling advanced AI chips to China. So much for Trump’s concern about national security. Beyond that, the US government now owns 15% of MP Materials, a large American miner of rare earths; 10% of Trilogy Metals Inc., which has mining claims in Alaska; 5% of Lithium Americas Corp., which is working on a mining project in Nevada for lithium, a key ingredient in batteries; and “golden shares” in US Steel. There is already talk of buying shares in American companies working on quantum computing.

On October 16, Treasury Secretary Scott Bessent declared that the government had to take equity stakes in companies in at least seven strategic sectors to counter China. Reportedly, dozens of companies are potential targets. This is the same Scott Bessent who blasted Biden’s grants to chipmakers like Intel as putting Soviet-style “central planning at the heart of his economic agenda.”

While Hassett claimed that the administration would not exert control, its actions belie the claim. For example, when US Steel’s new owner, Nippon Steel, wanted to shut down one of its plants while still paying its workers, Lutnick ordered NS to keep operating the plant. Bessent said that, in the case of rare earths, the administration might set “price floors” on products sold by these companies. While Tan had earlier talked of being more discriminating about Intel’s manufacturing efforts, the equity deal included a “poison pill” that would give the government another 5% of Intel if it were to spin off or sell its foundry business.

Threatening Executives…

In his unprecedented efforts to control companies, Trump is using a combination of fear and greed. The government has immense power to grant or deny tariff exemptions, prohibit mergers and export licenses, deny government contracts, or even, as in the case of Intel, refuse to pay its bills. Trump can even have the IRS and Justice Department launch criminal investigations, as he has done against others. “The whole thing strikes me as kind of a shakedown,” said Greg Mankiw, chief economist in the White House under George W. Bush. “It’s like when the mob comes to visit.”

Paramount, the owner of CBC TV, wanted to be bought by Skydance for $8 billion, but it needed administration approval. So, it ordered CBS News to pay Trump personally $16 million to settle a lawsuit claiming that CBS had deceptively edited an interview with Kamala Harris. Experts believe CBS could have won the case. After the settlement, the Trump administration approved the merger, and Skydance then appointed Bari Weiss as head of CBS News. Weiss co-founded the Free Press website, which accused CBS News of “concoct[ing] a deception.” Skydance’s pro-Trump CEO, David Ellison, also enriched Weiss by buying her Free Press for $150 million. Now, Ellison and his father want to buy CNN’s parent company, Warner Bros. Discovery.

One wonders when some US corporations will decide it’s time to buy Trump Coins, when every transaction sends cash into Trump’s personal pocket. Already, a mysterious company with ties to China and TikTok announced it had bought $300 million of the coins. There is speculation that this investment is aimed at getting permission for TikTok to operate in the US in defiance of a Congressional ban.

…And Bribing Them

At the same time, Trump is bribing CEOs by designing corporate tax breaks that send truckloads of money to top executives.

Trump’s 2017 tax cuts not only lowered the overall tax rate on corporate profits but also provided additional tax breaks that Congress just made permanent. Scholar Eric Ohrn examined two of them: bonus depreciation and the Domestic Production Activities Deduction (DPAD). Among companies on the stock market, he found that, for every dollar that the corporation benefits from the tax breaks, a whopping 17 to 25 cents boosts compensation for the firm’s top five executives. Scott Kennedy found comparable results when he examined the impact of the 2017 profit tax cuts on 11,000 companies, mostly non-listed firms. While owners and executives raked in the majority of the cash, the tax cuts made only a trivial improvement in company performance and, by extension, the overall economy.

Companies and their shareholders do better when the rule of law prevails, but not necessarily within the time horizon of their current leaders.

Other People’s Money: Japan and Korea

Trump is notorious for not paying his bills. Hence, instead of asking US taxpayers to pay for his “Investment Accelerator,” he demands that Japanese and Korean taxpayers do so under the threat of higher tariffs.

As I detailed in this post, to limit the rise in tariffs, Tokyo agreed to Trump’s deal, although it disagrees with Trump about what it promised in a September 4th Memorandum of Understanding (MOU), which Tokyo stresses is not a legally binding contract. The latter would have required ratification by each country’s legislature.

Under the MOU, Japan will send $550 billion to the US to finance projects designated by Trump. Moreover, “In the case where Japan elects not to fund [a project Trump has named—rk], the United States may also impose tariff rate or rates on Japanese imports into the United States at the rate determined by the President.” Although the US is supposed to pay back Japan if the project earns enough, the US gets 90% of any profits. But the terms are written so that the US can earn profits in the early years, even before Japan is fully repaid. Tokyo keeps insisting that only a fraction of the funds will come from the government, but the MOU says otherwise. The primary provider of funds on the Japanese side is the Japan Bank for International Cooperation (JBIC). However, the JBIC’s budget has to be approved by the Diet, and that could be very rough going. The MOU also says that, “Nothing in this Memorandum should conflict with Applicable Laws of each of the United States and Japan.” JBIC, for example, cannot finance projects likely to be unprofitable, like the $44 billion Alaska pipeline project Trump wants. But will Trump raise tariffs if Japan refuses to fund the project and if Trump insists, against all evidence, that it would be profitable?

This scheme also shows how Trump lives in a world of unreality. If the US does get $800 billion from Japan and Korea over the coming years, that will make the US trade deficit $800 billion larger than it would otherwise be. That could happen via more imports and/or fewer exports. Here’s why. It is a law of economics that the net amount of capital that other countries send to the US must be balanced by the volume of net imports that the US buys from the rest of the world. If capital flows and product flows do not mirror each other, then prices, interest rates, and currency values will change until they come into balance.

How Trump’s Tariffs Hurt the US

Goldman Sachs calculates that American consumers are currently paying about 55% of the cost of tariffs and that this will rise to 70% as foreign exporters and US businesses pass on more of the burden to households. Wharton Business School calculates that, if the tariff rates announced in April were maintained for 30 years, a middle-class person aged 30 would lose $33,000 over the rest of his/her life compared to pre-tariff expectations. Moreover, 30 years down the road, US GDP would be almost 6% lower than baseline forecasts, and American capital stock (factories and equipment, commercial buildings and equipment, infrastructure, etc.) would be nearly 11% below baseline forecasts.

Source: https://share.google/1SBYKuOAAYokuFkqZ

Beyond that, to the degree that firms operate and invest according to Trump’s political diktats rather than normal economic considerations, US productivity will suffer by an amount impossible to calculate.

Meanwhile, despite Trump’s claims to be reviving manufacturing, factory jobs continue to fall, and total job growth is slowing, partly because the Trump tariffs raise the cost of making products in the US.

Source: https://fred.stlouisfed.org/series/MANEMP

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