Washington — The Trump administration’s 10% stake in Intel, announced not long after President Trump had called on the chip maker’s CEO to resign, is being criticized by conservatives and some economic policy experts alike, who worry such extensive government intervention undermines free enterprise.
Kevin Hassett, director of the White House National Economic Council, may have fueled those misgivings, telling CNBC this week that although Intel is a “very, very special” circumstance, that “there’ll be more transactions, if not in this industry, then other industries.” The possibility of the U.S. acquiring stakes in additional U.S. companies was immediately met with criticism.
Adam Posen, president of the Petersen Foundation for International Economics, responded immediately to Hassett’s comment, posting on X, “ARE you effing kidding me? We are going past 1984 into Animal Farm territory at this point,” referring to the George Orwell satirical novel critiquing totalitarianism. “Did anyone vote for this? Anyone?”
Daniel Di Martino, a fellow at the right-of-center Manhattan Institute, predicted that if that happens, the U.S. would see more cronyism, with the result that “companies will underperform because they know they will be bailed out,” and “taxpayers will lose billions.”
“You can’t just be against socialism when the left does it,” conservative talk show host Erick Erikson said of the Intel agreement. “If you’re not against socialism overall, guess what? You’re going to get socialism. So if you support socialism, apparently Donald Trump is your guy.”
Why did the U.S. invest in Intel?
Mr. Trump says he’d like to increase chip production in the U.S. and reduce the nation’s dependence on chips manufactured overseas. He believes that the investment in Intel will help the U.S. to better position itself to maintain its technological edge over China in the artificial intelligence race. But the U.S. had already invested in Intel through the Biden-era CHIPS and Science Act, and Mr. Trump and his top administration officials said the U.S. government is owed a return on their investment.
White House press secretary Karoline Leavitt on Thursday said the U.S. is taking a stake “to ensure that the United States government is making our country wealthy again and is benefitting from some of these deals.”
“We should get an equity stake for our money,” Commerce Secretary Howard Lutnick told CNBC. “So we’ll deliver the money, which was already committed under the Biden administration. We’ll get equity in return for it.”
But Intel has been struggling — not just for a couple of years, but for decades, said Scott Lincicome, a leading economic and trade policy expert who is a vice president at the libertarian Cato Institute and has criticized the Intel deal.
Intel prospered in the 1990s and early 2000s, when most personal computers relied on the company’s processors. The emergence of competitors like AMD and Intel’s own failure to adapt to mobile computing after the 2007 advent of the iPhone clobbered the chipmaker.
And now, as Nvidia and AMD vie for dominance in the AI chip race, Intel has been lagging.
“Even if you think government should be investing in companies, Intel is not a lean, mean, innovating machine,” Lincicome said.
The company lost nearly $19 billion last year and another $3.7 billion in the first six months of this year, prompting company plans to reduce its workforce by 25% by the end of the year. The company said the administration made the $8.9 billion investment in Intel common stock because of the government’s confidence in the role Intel plays in “expanding the domestic semiconductor industry.”
The Biden administration originally said Intel had to meet certain benchmarks to get the taxpayer money, but Mr. Trump removed those goals to buy the stake in Intel.
Peril in partial government ownership
Economic policy experts fear the U.S. stake in Intel will throw open the door to political pressure and cronyism.
Intel warned in a federal filing this week that there “could be adverse reactions, immediately or over time, from investors, employees, customers, suppliers, other business or commercial partners, foreign governments or competitors.”
Lincicome maintains that Intel was able to obtain a government infusion of cash not on the strength of its operations, but rather because it has the best lobbyists. And this will just lead more companies to vie for investment in the same way, he said.
“This is one of the problems with government picking winners and losers in industrial policy in general,” Lincicome said.
He outlined his concerns in an op-ed for the Washington Post this week.
“With the U.S. government as its largest shareholder, Intel will face constant pressure to align corporate decisions with the goals of whatever political party is in power,” Lincicome wrote. “Will Intel locate or continue facilities — such as its long-delayed ‘megafab’ in Ohio — based on economic efficiency or government priorities? Will it hire and fire based on merit or political connections?”
Lincicome isn’t the only analyst who pointed out that the uncomfortable decisions CEOs make could come into conflict with U.S. prerogatives if the country holds a stake in their companies.
“There are major risks to these companies,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, while acknowledging it isn’t yet clear what the Trump administration is planning for any future investments. “A lot of the things that companies need to do in order to stay competitive in the market are politically unpopular,” like layoffs. “It’s going to be a lot harder for these companies to engage in those painful but necessary moves if the president feels like they would create a political vulnerability for him.”
Companies without U.S. investment will feel pressure, too, said Di Martino. A company that needs semiconductor chips may decide to buy from Intel because it doesn’t want to lose government contracts.
The Trump administration has shown a willingness to use industrial policy in other ways that depart from free market economic principles long favored by conservatives and corporate America. Most notably, Mr. Trump’s aggressive — and sometimes punitive — use of tariffs, which he has said will reduce the country’s trade deficit, revive American manufacturing and generate federal revenue, hearkens back to the mercantilism of centuries past and contrasts with the laissez-faire ideas that have shaped the American economy.
How is the U.S. paying for the Intel stake?
Much of the cash for the stake is coming from the Biden-era CHIPS and Science Act, which is intended to boost America’s competitiveness in the chip industry.
Intel has already received $2.2 billion from the CHIPS Act, and is on track to receive another $5.7 billion injection from the law. A different federal program gave Intel $3.2 billion, for a grand total of $11.1 billion, according to a release from Intel. Intel and the federal government say the ownership will be passive, and have not said how long the U.S. intends to hold onto its stake, although there is a provision for the government to expand its stake further.
How Intel plans to use the U.S. investment
The chip maker says it’s planning to use the money to expand its chip-making capacity by modernizing and increasing the size of U.S. sites in Arizona and elsewhere.
Hassett has defended the U.S. stake, referring to the process of partial ownership of Intel as “very, very special circumstances” because of the funding made available by the CHIPS Act. When he was asked about the U.S. bar for acquiring equity stakes in companies, Hassett told CNBC, “If we are adding fundamental value to your business, I think it’s fair for Donald Trump to think about the American people.”
Strain said a government stake in U.S. companies also poses a big risk for taxpayers, too.
“This is also going to accrue to the detriment of the American people, because you’re going to see a lot of good taxpayer money chasing bad investments because the government’s not going to extricate itself quickly or easily from these arrangements, and more generally, countries that have gone down this route have had slower productivity growth, slower increases in living standards, and companies that are less likely to be industry leaders,” Strain said.
Past U.S. stakes in big banks and automakers
One reason economists are uncomfortable with the government’s stake in Intel stems from the message it may send about the U.S. economy. The most prominent modern example of a similar U.S. investment took place during the 2008 financial crisis, when the U.S. sunk $700 billion into a big bank bailout and over $17 billion into two of the big three U.S. automakers. It did so because the banks were considered “too big to fail” and the potential collapse of the auto companies could cost millions of jobs.
Experts now are raising questions about the wisdom of buying a stake in a company when the economy isn’t in crisis.
Lincicome said the administration is sending a contradictory message by highlighting the struggles China is having with its economy while at the same time saying “we want to be more like China” by having the federal government more involved in U.S. companies.
“There is no crisis, there’s certainly no war, so this is a big break from what we’ve done before,” Lincicome said.
Although economists and politicians differ on the success of the General Motors and Chrysler bailouts, Lincicome said there was undoubtedly a crisis. The federal government took ownership stakes in the two automakers to stabilize them but within a few years had sold the stakes, after the companies were on firmer financial footing.
Not socialism, but maybe a step in that direction?
While partial ownership of Intel or other companies isn’t exactly socialism, Di Martino said it “absolutely” blurs the lines between the private sector and the public sector.
“Socialism and free enterprise are not a switch, they are a continuum,” Di Martino said, adding partial ownership of U.S. companies would be “definitely a step toward socialism, there is no doubt about that.”
Di Martino said the U.S. ownership stake in Intel “certainly gets us closer [to socialism] and makes us less prosperous.”
“I think the right way to describe it is a move toward state capitalism,” Strain said. “I don’t think I would describe it as socialism.”
Lutnick put it this way: “Intel agreed to give us 10% of their company, which, of course, was worth $11 billion.”
“So, it’s not socialism,” he said at a Trump Cabinet meeting Tuesday. “This is capitalism.”
Di Martino is dubious about whether that’s true. “We are intervening in the capital markets in a way that is going to lead to inefficiencies,” he said, adding, “And it’s going to shift capital away from other companies.”
