Late last week, it was announced that the Trump administration had reached an agreement for the federal government to acquire a roughly 10% stake in Intel, one of America’s leading chipmakers.
The deal involves the government investing $8.9 billion in Intel common stock, funded via grants under the CHIPS and Science Act (enacted in 2022 to address semiconductor chip shortages) and through other related federal programs.
The deal puts Trump on better terms with Intel CEO Lip-Bu Tan, after the president recently said the CEO should step down due to conflicts of interest. It will ensure that the chipmaker will receive about $10 billion in funds for building or expanding factories in the U.S.Under the agreement, the U.S. will purchase a 9.9% stake in Intel for $8.9 billion, or $20.47 per share, which represents a discount of about $4 from Intel’s closing share price of $24.80 on Friday.The purchase of the 433.3 million Intel shares will be made with funding from the $5.7 billion in unpaid grants from the Biden-era CHIPS Act and $3.2 billion awarded to Intel for the Secure Enclave program, also awarded under Trump’s predecessor, Democratic President Joe Biden.Intel stock rose roughly 1% in the extended session on Friday after closing up 5.5% during regular trading.
This is the latest special deal the Trump administration has made with American companies, under the “public-private” partnership template that the President favors (especially regarding the space industry). In April, the administration reached an agreement allowing AI chip giant Nvidia to sell its H20 chips to China in exchange for receiving 15% of those sales. The Pentagon recently became the largest shareholder in a small mining company, MP Materials, to boost the output of rare earth magnets essential for our defense industry.
I would argue that there are strong arguments in favor of the government’s move to back Intel through the procurement of common stock. To begin with, semiconductors are the backbone of modern technology and are vital for defense, infrastructure, and communications. By directly investing in Intel, the administration clearly plans to enhance and maintain a secure domestic chip supply and avoid strategic vulnerabilities related to foreign production.
Commerce Secretary Howard Lutnick clearly stressed that part of the rationale for taking a stake in the company is to reshore chip production.
“We cannot rely on Taiwan, which is 9,500 miles away from us and only 80 miles from China,” he told CNBC’s “Squawk Box.” “So, you can’t have 99 percent of leading-edge chips made in Taiwan. We want to make them here.”“One of those pieces is it would be lovely to have Intel be capable of making a U.S. node or a U.S. transistor, driving that in America,” he added.
This type of deal is not the first of its kind, either. During the 2009 auto industry bailout, the government injected nearly $50 billion into General Motors in return for a roughly 60% stake in the automaker.
However, it must be noted that the government will not take a seat on Intel’s board or exercise governance rights. The agreement intends to provide a financial backstop rather than ongoing operational control. As a bonus, instead of just doling out money in the form of a grant, American taxpayers should see a return on investment if the company prospers.
It’s called “Return on Investment,” and it is a good thing.
On the other hand, many reasonable people are concerned that moves like this veer dangerously close to the kind of economic intervention associated with socialism. And many are justifiably concerned about a government being able to pick winners and losers.
However, the fact of the matter is, American manufacturing has been gutted and hindered by awful policy choices. These destructive programs weren’t only from Obama or Biden, but Team Bush did Americans no great favors either.
And a great deal of discretion needs to be given to industries that our vital to our national defense.
I would argue that the Trump administration’s stake in Intel is justified given the serious issues with the semiconductor supply chain and the need to preserve American technology leadership. However, this type of approach must be watched with great vigilance. It is good to see the absence of governance rights and a clearly delineated scope for intervention clearly spelled out in this deal, as a healthy and adaptive economy needs to avoid sliding down into a socialist slope.
The Intel strategy safeguards national interests in a critical sector without fully crossing into the pitfalls of socialism. But policymakers must remain vigilant and ensure these interventions remain exceptional, transparent, and subject to regular scrutiny.
Finally, I am inclined to trust the Trump team on this matter, given all the other policy successes I have observed so far in the President’s second term.
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