A series of reports this week shows what happens when government equity stakes and, by extension, policymaking decisions are routed through the White House’s deal-making machine. State corporatist industrial policies start with grand promises but inevitably succumb to political favoritism.
And at some point, the appropriate word becomes corruption.
That word has legal meanings, and I am not alleging facts beyond what has been reported. But corruption also has a plain English meaning: When government power is exercised through opaque, discretionary channels to confer private benefits, reward political proximity, and make access to the president’s circle a business asset, the word fits.
Vulcan Elements and Pete Navarro
As my colleague Clark Packard explained yesterday, Vulcan is a small North Carolina rare earth magnet startup backed by 1789 Capital, where Donald Trump Jr. is a partner. About three months after 1789 took an undisclosed stake, the Trump administration announced a $670 million deal with the company in exchange for federal equity and warrant rights.
When I wrote about the Vulcan deal in March, I acknowledged that Trump Jr.’s fund’s investment didn’t prove the administration’s deal was awarded because of it. The company, Trump Jr., and 1789 all denied any connection. But the optics were terrible, and the episode showed exactly why federal ownership stakes in private companies are so problematic.
But Clark highlights a critical piece of new information: “Based on interviews and Defense Department records, ProPublica reported today that the push to fund Vulcan came directly from Peter Navarro, President Trump’s senior counselor for trade and manufacturing and a close friend of Trump Jr.” One Pentagon official said Vulcan was the only deal among dozens under consideration that a top aide to the president initiated. Another person involved in the deal said staff were pushed to move unusually fast, with the message: “The call came from the White House: We have to get this done.”
The Pentagon says “outside affiliations, investors, or political connections play absolutely no role” in its decisions.
Fine—then the administration should prove it by releasing the full deal terms, the scoring and due diligence materials, the communications between the White House and the Pentagon, the decision timeline, and any conflict-of-interest reviews involving companies in which members of the president’s family have financial interests. Congressional Democrats have already demanded records and briefings on these equity deals; the administration has stonewalled them, and House Republicans have blocked a subpoena seeking Donald Trump Jr.’s testimony about Vulcan.
Sure, Democrats smell political blood—because it’s there. Regardless, as is often the case, the GOP-controlled Congress appears more interested in covering up than uncovering.
The Portfolio Continues to Grow
Nor is Vulcan the only government ownership deal with a Trump-family financial connection. Last week, the administration announced equity deals with nine quantum computing companies, including another company in which Trump Jr.’s 1789 Capital invested, PsiQuantum.
And the number could grow: the Wall Street Journal reported yesterday that the administration is discussing possible equity deals with drone companies, including Unusual Machines, where Trump Jr. is both an investor and advisory board member.
Under policymaking by deal, once companies see that Washington isn’t just a regulator or customer but also a potential shareholder and protector, markets start asking, “Who has the right access?” rather than “Who has the best product?” Indeed, ProPublica quoted one mining executive seeking Pentagon money as saying, “It’s like any industry: A lot of what it is, is who you know.” Another quote should make every taxpayer cringe: “We’re hopeful you don’t need to be chums with Trump Jr. to get a project across.”
That’s a patronage system, not American free enterprise.
The rare earth and magnet sectors are a useful case study precisely because the underlying strategic issue is real. China’s subsidized, state-directed supply chain was built over decades, and there’s no quick or easy way around it. But in trying to counter China’s model, the US risks needlessly copying it, right down to government ownership and state control over private firms.
As Clark notes, China dominates key parts of the rare-earth supply chain. Permanent magnets require rare earth elements such as neodymium, praseodymium, terbium, and dysprosium, according to a Department of Energy supply-chain report. And the hard part isn’t simply digging rocks out of the ground; it’s processing them from the mine to magnet-making. There are significant steps, each with its own bottlenecks.
This reality should make policymakers more humble, not less.
Instead, the administration has been placing asymmetric bets with other people’s money. Bloomberg recently reported that the Pentagon has considered pulling back an $80 million conditional loan offer to ReElement Technologies, Vulcan’s primary supply chain partner, after officials raised concerns about ReElement’s ability to scale its technology and long-term revenue projections. The idea was for ReElement to produce rare earth oxides that Vulcan would use to manufacture magnets. Still, it’s an integrated supply chain solution that may just become an integrated problem for Vulcan, ReElement, and the White House.
And that’s exactly why this isn’t a job for political officials acting like venture capitalists. When the White House picks winners in a complex, technical industry, it distorts investment by steering capital toward politically favored firms and away from possibly better-positioned competitors or promising upstarts. It can also create national security risk by giving federal backing to companies that may not be ready or able to deliver.
The broader rare earths picture is getting messier by the day. Last week, MP Materials filed a lawsuit against USA Rare Earth, accusing the company of stealing the technology that’s key to reducing the use of heavy rare earths in magnets. Prior to this, the administration finalized an equity deal with MP Materials and announced one with USA Rare Earths. Regardless of who’s right and wrong, the episode underscores the larger problem. When the government inserts itself directly into market competition, especially in a sector as complex as rare earths, it elevates certain firms to the status of national champions—leaving everyone else to deal with the unintended consequences.
The market distortion doesn’t stop with the companies in which the government takes an ownership stake. Reuters reported this week that mining companies are rushing toward US listings, with many explicitly pitching themselves around defense demand and Pentagon-linked funding. Investors understand what the administration is signaling, which shows why the administration’s ownership spree is corruptive even when a particular deal doesn’t violate criminal law.
And it’s not limited to rare earths or drones.
The Art of the Deal?
Yesterday’s New York Times profile of Commerce Secretary Howard Lutnick describes an administration official wielding federal power in disturbingly aggressive ways, pressuring companies and foreign governments while pushing legal boundaries to drum up money that the president can tout (and embellish).
In one example, automakers reportedly felt misled after tariff-credit terms changed—costing Ford alone $1 billion in expected relief—but executives were reluctant to speak publicly because Lutnick maintained substantial influence over their business interests. The article also noted that “four tech industry executives said they had counseled colleagues against future meetings with the Commerce Department for fear that Mr. Lutnick would exhort them to give the government shares in their companies or make other concessions.”
That’s what governance by deal looks like, and it’s ugly—not to mention un-American.
The same pattern has appeared across the administration’s deal-making agenda: the president’s personal investments overlapping with government decisions, a Pentagon investment apparatus that resembles a pseudo-sovereign wealth fund, and the creation of an “Anti-Weaponization Fund” that frankly reeks of corruption. And that’s just scratching the surface.
The administration says it is rebuilding American industry. What it is actually building is a system in which political access becomes a form of capital.