Crony Capitalism Is Back: Why Tariffs, Exemptions, and Deal-Making Threaten Market Competition

Crony capitalism—the cozy alignment of political power and private interests—is making a comeback in American economic policy. Its symptoms are increasingly visible: sweeping tariffs followed by carve-outs for favored sectors, one-off corporate deals engineered by politicians, and a growing sense that success hinges less on competing in markets and more on currying favor in Washington.

At the center of this shift is the use of tariffs not just as a blunt trade tool, but as a lever for political discretion. When a government imposes broad tariffs and then doles out exemptions, it transforms policy into a gatekeeping exercise: winners and losers are chosen in back rooms, not in open markets. That dynamic supercharges lobbying, invites rent-seeking, and diverts capital from innovation toward political influence. It’s a tax on competitiveness disguised as patriotism.

Recent experience underscores the danger. After announcing steep tariffs, the administration quickly issued guidance carving out major product categories, including critical tech components. That kind of selective relief doesn’t just soften the economic blow—it creates a marketplace for favoritism. If your industry or product can secure a waiver, you gain a state-sanctioned cost advantage over rivals who can’t. The result is a politicized supply chain where investment decisions hinge on regulatory roulette rather than operational excellence.

Business leaders and economists are sounding alarms for good reason. Tariffs paired with discretionary exemptions encourage firms to spend more on lobbyists and less on engineers. They elevate compliance strategy over competitive strategy. And they embed uncertainty into long-term planning: Who will get the next exemption? Which industries will be protected or punished? Markets thrive on rules; cronyism thrives on relationships.

This isn’t theoretical. The pattern mirrors earlier episodes where the state intervened to “save” specific firms or industries with targeted incentives. High-profile deals that keep jobs in one place through tax breaks and special promises may make for splashy announcements, but they also send a message: political access can override market discipline. Once that template is established, pressure mounts for more carve-outs, more exceptions, and more bargaining—with taxpayers footing the bill and competitors sidelined.

Defenders argue that tariffs can bolster national security, rebuild industrial capacity, or level the playing field against unfair practices abroad. Those goals can be legitimate. But the method matters. Broad, durable, rules-based frameworks—grounded in transparent criteria and applied consistently—reduce the space for favoritism. By contrast, fast-moving tariffs and post hoc exemptions expand it. When policy shifts happen in weeks and waivers follow days later, the real comparative advantage becomes proximity to power.

The fiscal backdrop raises additional risk. With deficits elevated, policy that channels benefits to politically connected sectors without rigorous cost-benefit analysis can entrench inefficiencies and amplify inflationary pressure. Meanwhile, uncertainty over the durability of exemptions complicates supply-chain decisions, potentially raising costs for consumers while eroding the very resilience tariffs claim to build.

There’s a better path forward:

• Set clear, narrow national-security criteria for any trade restrictions, with sunset clauses and independent review.

• Replace ad hoc exemptions with transparent, rules-based processes published in advance and applied uniformly.

• Prioritize pro-competition reforms—streamlined permitting, predictable regulation, and stable tax rules—over firm-specific deals.

• Invest in foundational capacity (workforce, R&D, infrastructure) that enhances productivity across the economy rather than privileging select players.

The core choice is whether to pursue competitiveness by strengthening markets or by strengthening gatekeepers. Crony capitalism thrives when policy is discretionary, opaque, and fast-changing. Market capitalism thrives when policy is predictable, neutral, and contestable. For investors, operators, and workers, the distinction is not academic: it shapes capital allocation, innovation incentives, and long-run growth.

If the U.S. is to lead in the next decade, it must resist the lure of political deal-making masquerading as industrial strategy. Real prosperity comes from rules that reward performance—not relationships.