The Trump administration is reportedly aiming to acquire a 10% stake in chipmaker Intel, a direct intervention policy intended to fortify the national strategic industry. However, observers are sounding the alarm against the potential rise of crony capitalism.
The White House has confirmed ongoing discussions with Intel regarding a proposed 10% equity acquisition in the prominent chip manufacturing company. White House Press Secretary Karoline Leavitt stated last Tuesday, August 19th, amidst days of media speculation, that “President Donald Trump wants to put America’s needs first, both from a national security and economic perspective.”
While an acquisition of this nature by the U.S. government in a major corporation is uncommon, this move aligns with President Donald Trump’s stated policy of direct market intervention, a hallmark of his potential second term. This approach marks a significant departure from traditional U.S. economic doctrine.
Recent precedents illustrate this shift. Chip manufacturers Nvidia and AMD, for instance, recently agreed to remit approximately 15% of their sales in China to the U.S. government. Another notable example is the sale of U.S. Steel to Japan’s Nippon Steel, which granted the U.S. government a “golden share,” ensuring President Trump veto power over board decisions and the authority to appoint a board member. Furthermore, it was announced last month that the Washington government would become the largest shareholder in MP Materials, the sole operational rare earth metal mine in the U.S.
More than just an acquisition?
“The Trump administration really believes in a very expansive role for the government in intervening in the private sector, and is very actively pushing the boundaries,” Geoffrey Gertz, a senior fellow at the Center for a New American Security, told DW. He characterized such business interventions as “unusual,” deviating from previous U.S. administrations’ doctrines that typically sought to stimulate growth without direct involvement. Trump, Gertz explained, adopts a more personalized and targeted approach. “They’re making deals one by one with specific companies,” he said. “That’s quite different from setting national-level industrial policy standards or guidelines.”
Despite its unconventional nature, Trump’s approach garners considerable support, particularly concerning sectors deemed strategic in the U.S.-China rivalry, such as semiconductors and rare earth metals. Sujai Shivakumar, Director of the Renewing American Innovation program at the Center for Strategic & International Studies (CSIS) in Washington D.C., contends that the global semiconductor industry does not operate on a “level playing field,” given the substantial state support provided by countries like China.
“Intel is more than just a company, and I think this decision to invest is commendable,” Shivakumar told DW. He added, “It’s time we understood that this type of industrial policy is now the norm in developed countries, and governments do provide this massive support. If we cling to the myth of a pure market in the U.S., the risk is losing our position in one of the most strategic industries of this century.” Gertz, meanwhile, finds nothing “inherently wrong” with government investment in Intel. “I do believe there are strategic sectors, and there are reasons for active industrial policy, particularly where national security implications exist,” he affirmed.
The importance of chips for future industries
Both the Biden and Trump administrations share the objective of bolstering U.S. capacity to produce advanced chips, which are critical for high-tech industries. The Biden administration launched the bipartisan CHIPS Act in 2022, a legislative initiative that allocates federal aid and grants to companies like Intel, Taiwan Semiconductor Manufacturing Corporation (TSMC), and Samsung to enhance production within the U.S. While Samsung is a South Korean entity and TSMC is Taiwanese, Intel stands out as the most obvious candidate for strengthening domestic production capabilities.
However, the Santa Clara, California-based company has grappled with numerous challenges in recent years. Intel has not only struggled to keep pace with TSMC in producing the most advanced semiconductors but has also failed to capture the burgeoning AI data chip market, currently dominated by Nvidia. Consequently, its revenue has declined, and its stock price has plummeted. Interestingly, Trump, who previously criticized the CHIPS Act, even called for Intel CEO Lip-Bu Tan’s resignation earlier this month. Yet, following a meeting with Tan, Trump’s stance shifted as government plans to acquire a stake in Intel gained momentum.
Shivakumar posits that Intel is the sole national company with the potential to restore U.S. dominance in advanced chip production, thus warranting government support. “Intel needs commercial demand for its products to be viable, but it also needs viability to attract demand,” he explained. “They are stuck there. Without strong signals that provide impetus, this company will just be spinning its wheels.”
The specter of crony capitalism?
Bloomberg reported that this deal could involve the U.S. government taking an equity stake in exchange for a portion of the grants provided to Intel through the CHIPS Act. U.S. Commerce Secretary Howard Lutnick, who is leading negotiations for the government, told CNBC that the U.S. should “benefit” from such a scheme. “That is precisely Donald Trump’s perspective, why are we giving companies $100 billion,” he stated.
If the deal materializes, concerns are bound to surface regarding the Trump administration’s increasingly aggressive approach to direct intervention within American corporations. “There is a risk of crony capitalism emerging,” Gertz warned. “You could end up in a situation where competition weakens, long-term innovation is hampered, because there are some companies that are pampered and might become lazy because they know they are protected by the state.”
According to Shivakumar, the key lies in striking a balance between strategic interests and market forces. “It doesn’t mean we should write a blank check,” he clarified. “We cannot surrender everything to the market. There must be a balance, intelligent industrial policy that can help companies regain the trust of their customers, investors, and suppliers.”
Summary
The Trump administration is reportedly pursuing a 10% equity acquisition in chipmaker Intel, a direct intervention policy aimed at fortifying the national strategic industry. This move, confirmed by the White House, represents a significant departure from traditional U.S. economic doctrine, prioritizing national security and economic needs. Precedents include the U.S. government gaining a “golden share” in U.S. Steel and becoming the largest shareholder in MP Materials. Experts describe this as an expansive and targeted governmental role in the private sector.
Intel is seen as crucial for restoring U.S. dominance in advanced chip production, despite facing challenges in recent years against competitors like TSMC and Nvidia. Proponents argue that government support is vital for Intel’s viability to attract demand and maintain the nation’s position in this strategic industry. However, concerns have been raised about the potential for crony capitalism, which could weaken competition and stifle long-term innovation. The deal is reportedly structured to exchange an equity stake for CHIPS Act grants, necessitating a careful balance between strategic interests and market forces.