A matter of national security: how Donald Trump is building his version of state capitalism

The administration of US President Donald Trump has made an unprecedented deal with Intel - the government becomes the owner of almost 10% of the company's shares. This is not the first time that the American authorities have entered into the capital of companies in distress, but it is the first time when there is no economic crisis in the country.

In fact, the Trump administration received a 9.9% stake in Intel and became the company's largest shareholder without transferring a dime - a stake in the company the government got thanks to the CHIPS and Science Act, under which the government subsidized semiconductor manufacturers. Now the grants are transformed into a share in the company's capital. Conversion of state aid was held at a price of $20.47 per share, which is almost 17.5% less than the price of the company's securities at the close of the main trading on August 22, when the parties announced the deal.

The CHIPS Act was passed in 2022 to support chip manufacturing in the United States. In this way, the U.S. government wanted to stimulate domestic production of microcomponents. $52.7 billion in federal subsidies were allocated to domestic and foreign semiconductor manufacturers - for the construction and modernization of plants, as well as for research and technology development. In addition, companies received tax incentives for investments in the production of U.S. chips.

Intel also fell under the Secure Enclave program, which is the government's investment in critical businesses that secure defense technology, protect data, and operate military systems. In short, these are all national security issues. The company must provide the U.S. with domestic chips for critical infrastructure.

The total promised CHIPS and Science Act and Secure Enclave support for Intel was $11.1 billion, of which the government converted $8.9 billion into its share, with Intel retaining the remaining $2.2 billion as grant aid.

Simply put, before the deal, Intel received the promised subsidies "as a gift," promising only to build factories in the United States. After the deal, the government became the owner, having the opportunity to influence the company and earn money, although without the right to representation on the board of directors and without access to inside information.

On the one hand, the company should be happy - in exchange for billions of dollars, it needs to produce products for national security needs. On the other hand, the U.S. authorities gain control over a strategic enterprise and reduce dependence on other countries, for example, on the political adversary represented by China.

It would seem that everyone is a winner, but there is a nuance. Before the Intel case, US government intervention in the private sector was minimal, the market was the main regulator. Now, for the first time outside of the crisis and wartime, the US has converted subsidies into shares.

As if in keeping with the precepts of biographical books about Donald Trump, it began with one of his rules of life - "Attack, attack, attack."

In this case, "criticize."

In mid-August, the president called for the firing of Intel CEO Lip-Bu Tan over his alleged ties to China.

Tan has been accused of collaborating with the Chinese government, having ties to China's military sector, and investing in other companies to produce semiconductors. He was the longtime CEO of Cadence Design Systems, which agreed to pay $140.6 million for violating U.S. export restrictions - shipments to China's National University of Defense Technology.

The face of the attack campaign was Republican Senator Tim Cotton, who sent a letter to Intel's board of directors and demanded an explanation. He was supported by several other lawmakers - Senator Rick Scott of Florida and Jim Banks of Indiana. Thus began the pressure of collective Washington.

This was followed by an Oval Office meeting between Trump and Tan, which the president called "very interesting." Then it became known that the White House would get a stake in the company.

This is not the first attempt by the U.S. administration to use similar tactics.

Prior to that, the U.S. secured a"golden share" in U.S. Steel in a deal to sell the asset to Nippon Steel. The Japanese wanted to buy the U.S. company back in 2023, but the deal was blocked for national security reasons by the then Joe Biden administration. Under Trump, things only moved forward after such a guarantee of control from the Japanese buyer. Now Trump has also gotten Nvidia and AMD to contribute 15% to the U.S. budget from AI chip sales to China.

The Intel story is radically different from previous cases of government intervention in private companies.

Historically, such examples abound. After the collapse of private passenger railroads in the 1970s, the government created Amtrak, or National Railroad Passenger Corporation, where the government is still the controlling shareholder. Another government-owned company, Conrail, was created in 1976 from bankrupt carriers, and the government owned it for more than a decade and did not privatize it until 1987.

In 2008, during the global financial crisis, the authorities took the two largest mortgage corporations Fannie Mae and Freddie Mac under external management. They had already been controlled by the government for 17 years and sent their profits to the budget.

During Barack Obama's presidency in 2009, auto giants General Motors and Chrysler were on the verge of bankruptcy, and the U.S. administration was forced to invest in their rescue in exchange for stakes in the companies.

GM alone received about $50 billion, and the White House became the owner of almost 61% of the company's shares, $12.5 billion was received by Chrysler, and the Ministry of Finance in return - a 6% stake in this automaker. Later, the government completely withdrew from the capital of both companies.

The budget lost more than $11 billion just to help GM, but it was more important for the U.S. authorities to save jobs for the next midterm elections to Congress in 2010. According to a report by the Center for Automotive Research, 1.4 million jobs were saved by 2010. If GM and Chrysler had completely stopped working, Americans would have lost 2.6 million jobs in 2009 and another 1.5 million in 2010. By the way, the overall situation in the economy was such that these bailouts did not help the Democratic Party, it lost 63 seats.

There were other examples during the 2008 crisis. For example, in American International Group (AIG) - the largest insurer in the world - the government invested about $182 billion and received almost 80% of shares in return. By 2012, the government had exited AIG with a profit.

The U.S. authorities also helped the banks that were hardest hit in 2008. Citigroup received $45 billion and guarantees for more than $300 billion of troubled assets. Part of the aid was converted into shares, the U.S. Treasury owned 27% of the bank. By 2011, Citi returned all the government aid, and the Ministry of Finance sold the shares.

Studying the examples of the past, one can come to the following algorithm of government intervention in the private sector. When in a crisis a company is unable to survive without the help of the government, the latter comes to its aid and provides direct assistance, state guarantees, loans, and in return receives shares. Then the troubled company undergoes restructuring - cuts costs and carries out reforms under the close influence of the authorities. Then the government withdraws from the company's capital or continues to control it in case of strategic importance for the country and the economy.

"Buying" 10% of Intel shares does not fit into this algorithm. There is no threat of bankruptcy, no large-scale crisis like GM had, for example. It's a geopolitical investment and a pledge for a future technological confrontation with China, not the company's salvation.

Moreover, the agreement provides that if Intel's share of its own contract business falls below 51%, the government can buy another 5% at the same favorable price. The warrant for 5% additional shares at $20 apiece is valid for five years. This will strengthen the White House's control over the fate of a key player in the U.S. technology industry.

Rand Paul, a Republican and libertarian in the US Congress, reacted most strongly to Trump's new policy. He criticized Trump's idea and called it terrible. The politician believes that if socialism is when the state owns the means of production, then a 10% stake in Intel is a step towards building socialism.

The Intel scheme could be repeated with other companies that are of strategic interest or raise questions for the current administration. Earlier in August, a White House spokesperson essentially partially confirmed this thesis, telling Reuters that the Trump administration is considering acquiring stakes in companies receiving CHIPS Act funding, but not large businesses that will increase their investments in the U.S. economy.

It is likely that the Trump administration, under the guise of strategic and national security interests, will offer companies several options to "cooperate" with the government.

For example, as with Apple - investing $500 billion in building server factories. The other is like Intel, which faced difficulties after years of strategic mistakes and technological breakthroughs by competitors.

The options are many.

This article was AI-translated and verified by a human editor