Izabella Kaminska is the senior finance editor at POLITICO
In the economic showdown with America, Europe is preparing to confront a foe that has evolved. The state-backed largesse of Bidenomics is no longer the primary concern; instead, Europe faces a more profound liberalization of America’s economic model.
For decades, Europeans subscribed to the belief that U.S. prosperity was founded on free markets and entrepreneurial spirit. However, this perspective shifted dramatically over the last ten years.
The economist Mariana Mazzucato played a pivotal role in dismantling that myth. In her 2013 book “The Entrepreneurial State,” she contended that many significant innovations of the past decades—such as the internet, GPS, and smartphone technologies—were predominantly initiated by government investment. Mazzucato asserted that effective industrial policy is deeply rooted in defense spending, targeted subsidies, and state-driven innovation.
Then came Bidenomics, delivering a decisive coup de grâce to Europe’s perception of America as a free-market utopia. U.S. President Joe Biden’s $369 billion Inflation Reduction Act, which provides substantial support to sustainable industries, especially electric vehicles, was interpreted in Europe as a blatant government-led strategy to siphon investment from the EU.
In retaliation, the EU has become increasingly focused on emulating this state-led industrial policy, prioritizing European champions and expediting subsidy approvals.
However, as Europe races to establish its industrial strategy, it overlooks a transformative shift in the economic landscape. The next stage of U.S. economic policy transcends subsidies, state-driven growth, and sector-specific regulations—it aims to dismantle that model entirely.
The era of Bidenomics is being overshadowed by a new vision, which could be characterized as “national capitalism.” This philosophy promotes radical liberalization that rejects state intervention, embraces privatization, and heavily relies on market forces to reshape the economy—albeit within a protected system.
For some reason, this critical message seems to evade Brussels, which stubbornly continues to engage in outdated conflicts, wielding the statist tools of a bygone era.
A significant factor in this ongoing misdiagnosis is the failure to comprehend the true intent behind the tariffs threatened by U.S. President Donald Trump.
These tariffs are not driven by beggar-thy-neighbor trade objectives or crude protectionism; they are intended to reset the rules of the game. Their goal is to insulate the U.S. as it embarks on a radical market-oriented recalibration, stripping away the distortive and often corruptive influence of other countries’ state-driven economic models.
Overwhelmed by knee-jerk reactions, officials in Brussels are missing this fundamental reorientation—even as Scott Bessent, poised to become Trump’s treasury secretary, has been unambiguously clear.
“Free trade is to some degree in tension with free markets,” he stated in an op-ed for The Economist last year, criticizing decades of distortions caused by globalization. Bessent’s vision advocates for a radical reset focused on eliminating domestic subsidies, confronting foreign distortions, and establishing a level playing field where genuine market forces—not state interventions—dictate outcomes.
In simpler terms, the U.S. must construct barriers against products from the global economy to facilitate a more radical liberalization domestically.
Evidence of this shift towards liberalization is pervasive.
Beyond the headline-grabbing tax-cutting agenda, Trump’s America plans to eliminate subsidies for green energy and electric vehicles, threatening key provisions of the Inflation Reduction Act. Fossil fuels are set to compete on equal footing, following years of being sidelined by preferential policies for renewables. The Trump administration has even floated the idea of privatizing the U.S. Postal Service, Fannie Mae, and Freddie Mac while proposing market-driven reforms in education and space exploration.
The newly inaugurated U.S. president’s stance on monopolies further underscores this transformation. His nomination of Andrew Ferguson to lead the Federal Trade Commission signals an assertive antitrust agenda prioritizing competition. “Without vigorous enforcement of our competition laws, our free-enterprise system would cease to be the miraculous engine for mass flourishing that has transformed the world,” Ferguson declared during his confirmation hearing’s opening remarks.
In contrast, Europe’s approach with the Digital Markets Act appears timid—a bureaucratic response to Big Tech’s power rather than an initiative to dismantle it, reminiscent of Teddy Roosevelt’s trust-busting efforts.
This is not America doubling down on industrial policy; rather, it is America abandoning it.
Even in defense, which has historically been a cornerstone of U.S. industrial strategy, Trump’s agenda reflects the principles of national capitalism. Pete Hegseth, the president’s nominee for secretary of defense, has made it clear that he intends to disrupt entrenched relationships between the Pentagon and contractors. This vision promotes open competition where smaller, more agile firms can challenge established players.
“We must leverage market forces to prioritize competition and maximize innovation,” Hegseth wrote in response to the Senate Armed Services Committee ahead of his confirmation hearing in January. This stands in stark contrast to Europe’s defense strategy, which continues to protect national champions under the pretext of strategic autonomy.
Meanwhile, in finance, Trump’s scathing remarks regarding government-supported bank bailouts in 2023 have set the tone for future policies. His exploration of a bitcoin reserve—an initiative proponents argue would render central banks incapable of propping up banks through money printing—suggests that the era of state-supported banks may be coming to an end.
Perhaps the most radical aspect of Trump’s vision is its redefinition of the social contract with the American people, shifting state protectionism from micro- to macro-management.
Europe is failing to recognize how the battlefield has transformed. The cost of this miscalculation could be significant.
