Strategic Competition and the Retreat of Laissez-Faire

For much of the twentieth century, the United States cast itself as the world’s chief of laissez-faire economics. From Bretton Woods to the post-Cold War “Washington Consensus,” it argued that minimal state intervention, free capital flows, and open trade were the surest route to prosperity. Yet, Washington’s behavior in recent years blurs the line between America's free-market orthodoxy and strategic statecraft.

The U.S. confronts China’s state-capitalist rise through weakening laissez-faire.

The U.S. as the Practitioner of Industrial Policy

China’s economic ascent was powered by policies that would have been dismissed as market distortions in earlier U.S. discourse. State banks funneled capital to sectors ranging from semiconductors to green energy. Foreign firms were often required to transfer technology and form joint ventures in exchange for market access. Five-Year Plans in China directed resources toward strategic industries.

For decades, Washington criticized China’s methods in the context of free enterprise. Yet, its recent response often mirrors the very playbook it once condemned. America’s approach is the same regardless of Republicans’ or Democrats’ political leanings.

The shift was visible in massive subsidies such as the CHIPS and Science Act of 2022, which committed more than $52 billion in direct support to semiconductor fabrication with the explicit aim of countering Chinese capacity. The Inflation Reduction Act channeled hundreds of billions into electric vehicles, batteries, and renewable energy, tying climate goals to national competitiveness. These were the laws enacted during the Biden era of 2021-2025.

Export controls on advanced chips and lithography equipment now limit Chinese access to cutting-edge technology, while U.S. agencies such as the Department of Defense increasingly take equity positions or long-term offtake agreements with critical-minerals producers to secure supply.

The Pentagon’s quiet practice of buying shares in satellite and AI start-ups for national-security reasons would once have been unthinkable in a country wedded to the invisible hand.

A striking extension of this logic is the federal government’s direct stockholdership in private firms.

Neoliberal Legacies

The embrace of industrial policy follows four decades in which the United States exported a neoliberal model that favored capital over labor.

Federal corporate tax rates fell from 46% in 1986 to 21% after the 2017 reform, a 25-point drop. Over the same period, top individual rates barely budged, and payroll taxes for workers rose.

Since 1980, the share of U.S. national income going to the top one percent nearly doubled, while median wages stagnated.

Institutions such as the IMF and World Bank encouraged similar liberalization abroad, embedding a pattern of regressive taxation and privatization. This neoliberal order generated vast corporate profits and buoyed financial markets but left households with eroding bargaining power.

The political backlash visible in both populist movements and widespread skepticism toward free trade has made purely market-driven policy politically untenable.

Security First

Strategic competition now determines economic priorities. The U.S. government’s Defense Production Act allocations fund lithium, cobalt, and rare-earth mining projects to reduce dependence on Chinese supply.

Export bans on advanced lithography equipment are designed less to maintain a military edge.

Markets remain vital, but they are instruments of national strategy rather than autonomous arbiters of resource allocation. However, climate actions and socially sensitive matters such as equality are left to the hands of markets.

The government’s own stockholdership reinforces this transformation. By holding equity in companies that produce critical technologies, federal agencies are not merely financing innovation, but influencing corporate decisions from research priorities to supply-chain contracts.

Ownership allows Washington to secure first rights to essential production and to block or shape foreign acquisitions, blending the roles of regulator, investor, and strategic partner.

The Death of Laissez-Faire?

Declaring laissez-faire “dead” would be an overstatement. Private enterprise and global capital still dominate daily economic life. Yet, the U.S. is clearly redefining the hierarchy: security and resilience now outrank price efficiency.

The logic of classical liberalism that the pursuit of self-interest in open markets best serves the public good no longer commands unquestioned allegiance in Washington.

The neoliberal policies the United States championed after the Cold War—low corporate taxes, financial deregulation, offshoring—exacerbated inequality at home and fueled China’s export-led rise.

Now, to contain the strategic consequences of that rise, Washington is adopting the very tools it once condemned.

A New Economic Language

The emergent U.S. model is not outright state capitalism, but a hybrid order. Markets set prices and reward innovation. Yet, the state dictates where critical capacity must reside and even holds equity in private firms when security demands it.

In this language of power, economic freedom remains, but it is conditioned by strategic necessity. The globalized world persists, but it comes with gated sectors in chips, data, energy, and defense. Growth remains important in the eyes of governments, but resilience and technological sovereignty have become equal objectives.

The United States once exported a neoliberal orthodoxy that privileged corporations, compressed household bargaining power, and widened inequality. Now, it confronts the geopolitical consequences of that very model.

What emerges is a broad embrace of methods reminiscent of China’s approach. This is security-anchored capitalism, where the state acts not as a neutral referee but as an active player, shaping markets in the name of national survival.

Are we witnessing a temporary economic order for an era of great-power rivalry, or the permanent rewriting of America’s economic philosophy?