Trump Administration Takes a 10% Stake in Intel to Boost Domestic Chipmaking Amid Competition with China and National Security Concerns
In the competitive American economy, market forces often determine success, with minimal government intervention in business affairs. However, during times of crisis or conflict, the federal government has occasionally stepped in to safeguard national interests.
During World War I and II, the government took control of rail and telegraph networks, nationalized industries such as coal mining, and intervened when strikes threatened the war effort. The establishment of the Federal Deposit Insurance Corporation (FDIC) post-Great Depression marked a significant intervention in the banking sector, with the agency assuming ownership of failing banks to protect depositors and maintain economic stability.
During the 2007-09 financial crisis, the government took equity stakes in companies deemed “too big to fail,” including insurer AIG and automakers Chrysler and General Motors, to prevent their collapse.
In late August, the Trump administration followed suit, acquiring a substantial stake in chipmaker Intel – making it the company’s largest single shareholder. Intel produces microchips that are integral to various technologies, including self-driving cars and data centers.
Unlike previous interventions during times of crisis or war, this move comes amid no immediate economic upheaval or armed conflict. Instead, the government’s motivation stems from the intensifying competition with China and the race for artificial intelligence. The aim is to boost American companies’ ability to manufacture cutting-edge microchips domestically.
Last year, President Biden channeled billions of dollars in grants to Intel via the CHIPS and Science Act. Now, these grants are being converted into equity under the Trump administration.
Michael Malone, author of “The Intel Trinity,” asserts that Intel played a crucial role in the development of modern microchips, having been founded in 1968 in Mountain View, California. The company’s chips were instrumental in the emergence and growth of what is now known as Silicon Valley.
However, Intel missed out on the smartphone boom and failed to capitalize on opportunities in AI data centers. As a result, Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung currently lead the pack, with Intel playing catch-up.
Despite this, analysts suggest that Intel remains the best option for the United States to reclaim leadership in high-end chip manufacturing. Jennifer Lind, a professor of government at Dartmouth College, points out that Intel is the only U.S.-based company capable of physically manufacturing advanced chips. Most other major players, such as Nvidia and AMD, design chips but outsource their fabrication to Taiwanese manufacturers like TSMC.
The motivation behind propping up Intel and revitalizing leading-edge chip manufacturing in the United States is twofold: reducing the risk of foreign supply shocks and mitigating potential vulnerabilities posed by foreign-made chips in critical national security systems.
Jacob Feldgoise, an analyst at Georgetown University’s Center for Security and Emerging Technology, explains that the government’s concern revolves around the possibility of overseas fabrication plants being disrupted, particularly in relation to potential conflicts with China. TSMC, based in Taiwan, is a significant manufacturer of advanced chips worldwide, making it a strategic target.
Another reason for the U.S. government’s support of Intel is to mitigate risks associated with foreign-made chips in critical national security systems – despite Taiwan’s status as a longstanding friend of the United States and South Korea’s role as a treaty ally. For instance, there could be concerns about missiles equipped with foreign-made chips containing security vulnerabilities that might cause them to malfunction.
Intel’s CEO Lip-Bu Tan expressed gratitude for the confidence placed in Intel by the Trump administration. Government backing, often manifested through subsidies, can have a significant impact, as demonstrated by Taiwan’s semiconductor industry. John Dallesasse, a professor of Electrical and Computer Engineering at the University of Illinois at Urbana–Champaign, agrees that some investment of government dollars is necessary to maintain a level playing field in the global chip manufacturing market.
The U.S. government’s deal with Intel does not grant voting or governance rights. However, an equity stake may demonstrate a higher level of commitment than grants or bailouts. Experts caution that robust government involvement carries risks, including potential political fallout and increased political pressure on company decisions. Moreover, government intervention in business can lead to inefficiency, politicization, and favoritism, which could ultimately stifle innovation – the very outcome the government aims to achieve through its support of Intel.