Intel, Nvidia, and the ‘Visible Hand’ of Trump Capitalism

President Donald Trump has cast a hand in nearly every aspect of the U.S. economy this year. (Getty Images)

Key Points

• President Trump’s “visible hand” approach involves direct intervention in the economy, contrasting with Adam Smith’s free-market theory.
• Intel’s stock advanced 53% last month after the President secured a 10% stake in the company to encourage domestic semiconductor production.
• The S&P 500 is up 35% from its early April lows, with investors adding $224 billion to U.S. equity holdings year to date.

Adam Smith wrote about free-market incentives nearly 250 years ago in his seminal work, The Wealth of Nations, describing them as the “invisible hand” of capitalism.

At its core, Smith’s theory is that self-interested economic decisions ultimately end up serving a greater public interest. In other words, the best course is to leave capitalism alone, let markets self-regulate, and keep the government out of the boardroom.

President Donald Trump appears to prefer a more direct approach. His “visible hand” of incentives and pressure is finding its way into a host of areas in the world’s biggest economy.

The White House didn’t immediately respond to a request for comment.

It has meant at least short-term gains for some investors. The 10% stake he extracted from Intel in August as part of a broader effort to encourage domestic semiconductor production is now worth around $16 billion, based on the 53% advance the otherwise struggling company achieved last month.

A deal that will protect Pfizer from tariffs on pharmaceutical imports in exchange for lower prescription drug prices in Medicaid, among other concessions from the company, came earlier this week. The stock has rallied more than 14% over the past three trading days.

Nvidia has agreed to share some revenue with the government, while the departments of Energy and Defense are taking stakes in producers of lithium and rare earth metals.

The president also brokered the separation of TikTok U.S. from its China-based owners at ByteDance last month in a deal that pegs the value of the social media behemoth’s U.S. operations at just $14 billion.

That allows for tremendous potential upside for investors who will take part in a transaction demanded by U.S. lawmakers. They include the Republican donor Larry Ellison, Oracle’s billionaire co-founder.

More deals are likely on the way. Reuters reported Thursday that the president is looking to use $250 billion in financing to further “the economic and national security interests of the United States.” That could mean deals with as many as 30 critical industries before next year’s mid-term elections, the news agency said.

All of these moves, of course, sit beside the president’s use of tariffs for political purposes, as was the case for levies on goods from Brazil. His continuing effort to remake the Federal Reserve extends the president’s interventionist stance into a new zone, threatening the independence of monetary policy widely seen as a key to the U.S.’s economic success.

That “visible hand”, however, has yet to meet any sustained pushback from the free markets that are meant to abhor it. U.S. stocks are powering into their fourth year of a bull market that has added more than $26 trillion in value. The S&P 500 is up 35% from its early April lows.

Investors added $6.7 billion to their U.S. equity holdings over the past three weeks, according to Bank of America data published Thursday, taking the year-to-date tally to $224 billion. That is just under half of all of the money that has flowed into stocks in all developed markets and nearly five times the total devoted to European shares.

Even this week’s government shutdown, and the first unscheduled delay in a monthly jobs report since 2013, has failed to shake investor confidence. In fact, the S&P 500 is on pace for its longest daily winning streak since July and market volatility is fairly low.

Smith was adamant in the dangers to an economy from “a statesman who presumed to direct private people in what manner they ought to employ their capital.” We may all find out together if he was right.

Write to Martin Baccardax at martin.baccardax@barrons.com