The New Economic Cold War

How the administration is preparing for the new economic Cold War

For decades, the U.S. operated under a fatal delusion that free trade with China would liberalize its politics and that the global market was a neutral playing field. We were profoundly wrong.

In 2000, the U.S. controlled 37 percent of global semiconductor fabrication. Today, we control less than 12 percent, whereas China is on track for 40 percent by 2030. While we played by the rules of Adam Smith, Beijing was playing by the rules of Sun Tzu.

We are now in the midst of a silent and asymmetric economic war. China does not have a private sector in the American sense. Under its strategy of civil-military fusion, every ByteDance algorithm and every ton of refined lithium is a dual use asset of the Chinese Communist Party. Meanwhile, the U.S. encouraged the atrophy of its industrial base by prioritizing short term profits from outsourcing to China instead of securing our own economic and national security future. The West created this irrational strategic vulnerability where Beijing now controls 80 percent of refined rare earth supplies and more than 60 percent of the magnets in actuation systems for the F-35.

Recognizing that economic security is national security, the Trump administration has installed a genuine war cabinet for economic conflict. This includes the Treasury and Commerce Secretaries, but the pivot is most visible at the Department of War. There, the deputy secretary, is a battle-tested private equity leader who left his firm in order to bring his skills to fight and has operationalized a new offensive strategy to link private sector dynamism with state imperatives.

The tip of this spear is the newly chartered Economic Defense Unit.

Directly overseen by the deputy secretary of war and run by another private equity industry specialist in industrial consolidation, the Economic Defense Unit is not another regulator. Rather, it functions as an internal merchant bank designed to bypass the Pentagon’s notoriously slow procurement cycles. The unit has replaced compliance-based bureaucracy with commercial first financing. Its mandate is to generate investable demand signals using the government balance sheet to de risk private capital investment in the defense industrial base.

Instead of vague promises, the Economic Defense Unit now utilizes advance market commitments — binding contracts to purchase critical technologies such as solid rocket motors or autonomous drones before the factories are even built. This transforms government contracts into bankable assets that companies can use to secure private loans. Furthermore, the Economic Defense Unit has restructured acquisition management, replacing narrow program executive officers with portfolio acquisition executives who are authorized to move capital rapidly across capability sets much like a private equity managing partner.

Complementing this is the transformed Office of Strategic Capital — once merely an advisory body, now recast by the fiscal 2026 National Defense Authorization Act into a direct capital allocator. It is aggressively bridging the valley of death not just for software but for heavy manufacturing. By offering direct loans and guarantees specifically for equipment finance, the Office of Strategic Capital ensures that American companies can afford the high capital machinery needed to onshore production of semiconductors and batteries.

This architecture represents a total departure from the status quo. We are moving from a system that audits costs to a system that finances outcomes. The Army parallel initiative to grant direct commissions to Silicon Valley engineers further reinforces this culture shift — destroying the wall between the Pentagon and Palo Alto.

The message to the American private sector is clear: The era of neutrality is over. There is no free market left to win if China ends up owning the building blocks of every major industry. Wall Street and Silicon Valley must partner with the government not out of charity, but out of necessity.

The administration has built the financial and policy architecture for economic sovereignty. American capital now faces the simplest decision in its history, which is to deploy here and own the 21st century, or deploy elsewhere and become its tenant.

*Paul Hayden Miller is former managing director at Cerberus Capital Management.

Source: https://thehill.com/opinion/national-security/5682848-wall-street-and-the-new-economic-cold-war/