The US Supreme Court’s 20 February decision did more than strike down one president’s trade gambit. It drew a bright constitutional line around how far the White House can go in unilaterally reshaping the marketplace, and it handed corporate America a rare opportunity – and responsibility – to recalibrate its own posture towards state power.
President Donald Trump’s immediate reaction was telling. Within hours of the High Court invalidating his ‘Liberation Day’ emergency tariffs under the International Emergency Economic Powers Act, he vowed to impose a new 10% to 15% global tariff using other statutory hooks, lashing out at the Court and signalling his intent to continue governing trade policy by personal fiat rather than through transparent, legislated rules.
That reaction crystallises the core challenge for business: how should the private sector respond to a president whose deal-making instincts and appetite for control are reshaping American capitalism into something that is more state-directed, more arbitrary and ultimately a serious risk to the level playing field on which markets depend?
American state capitalism
Trump 2.0 has not simply revived traditional industrial policy. The president has advanced a distinctly American form of state capitalism in which the federal government acts as investor, broker and rent-seeking partner at the firm level. Government agencies have taken equity stakes in companies such as Intel, MP Materials, Lithium Americas’ Thacker Pass and Canada’s Trilogy Metals, using tools like CHIPS Act funds, Defense Production Act authorities and export-control leverage to reach deep into the investment process to define terms and secure profit-sharing arrangements.
The administration has extracted concessions from foreign governments as well as US private sector firms, for example the reported Japanese commitment to invest $550bn in US industries in exchange for a stable tariff rate. Trump has used tariffs and export controls to push chipmakers Nvidia and AMD into revenue-sharing arrangements on China-related sales.
The White House has sought and obtained golden shares and other special governance rights in high-profile transactions, notably the Nippon Steel-US Steel deal, essentially conferring veto powers beyond those of ordinary shareholders and ensuring government influence long after this administration leaves office.
What makes this strategy different to other administrations’?
Clearly, these interventions can be explained as legitimate pro-growth, pro-security and pro-America strategies. These have all been in evidence in contemporary US history times – notably from Franklin Delano Roosevelt’s New Deal to Barack Obama’s financial sector bailouts and Joe Biden’s industrial policy. The goals of national security, job creation and securing the US competitive advantage over China are valid and commendable.
But what distinguishes now from then is the logic that drives their structure and execution. For the president, the strategy includes the belief that the state is an activist investor entitled to seize the advantage that the government’s asymmetric power offers and to extract profit in the process. There is a singular, evolving pattern of state behaviour that is apparent in the US intervention in specific firms – as an investor, a broker and rentier, write William Henegan, Council on Foreign Relations, and Ely Sandler, Harvard University.
What’s missing is due process and the test of their legality.
The law must prevail
The IEEPA tariffs are a clear expression of the style of Trump 2.0. When Trump declared a sweeping national emergency and ordered imposition of global tariffs of up to 50% last April, he said it was to correct bilateral trade balances. Using the IEEPA authority, he then proceeded to bypass Congress and the detailed procedures that are part of US trade statutes.
And it was this move that the High Court’s 6-3 ruling unambiguously rejected. Tariffs are a form of taxation and their imposition is squarely within Congress’s Article I powers. IEEPA cannot be stretched into a general-purpose trade and industrial policy tool.
As Justice Neil Gorsuch emphasised in a separate concurrence to the ruling, ‘because laws must earn such broad support to survive the legislative process, they tend to endure, allowing ordinary people to plan their lives in ways they cannot when the rules shift from day to day.’ Put another way, the US Constitution anticipates an executive who crafts and enforces policy that is consistent with the law of the land and, whenever required, seeks the advice and consent of the White House’s constitutionally guaranteed partners.
Questions for big business
So how should corporate America be responding to the High Court’s conclusion as well as the material governance risks? What can be their position given the vagaries of a president who chips away at the core values of capitalism that underpin market integrity?
How should they answer when the White House demands a quick response plus a sizeable capital commitment even though the numbers don’t quite tally? What is there to do when geopolitical scenarios reflect uncertainty and instability in markets set in motion by sweeping policy change? What is the economically rational choice for corporate America?
Given the context, a clear, unequivocable response would be an effort to preserve institutional conditions that make profit-seeking in open markets possible.
Jeffrey Sonnenfeld, Yale University dean and founder of the Chief Executive Leadership Institute at Yale, has an answer. The cost of inaction could be catastrophic, he says. The time is now ‘for urgent, constructive conversation, minus the presumption of imperial fealty. When single voices are shouted down a chorus breaks through’.
Marsha Vande Berg is Vice Chair of the OMFIF Advisory Council and Chief Executive Officer of MVandeBerg Advisory. She writes ‘Context at Geostrategics’ coming on Substack.
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