The legal basis for taking equity stakes in firms like Intel is not explicit authorization. Instead, the administration relies on the fact that laws like the CHIPS Act don't expressly forbid it, coupled with the low likelihood of a legal challenge from the benefiting companies.
The deal with rare-earths miner MP Materials goes beyond simple subsidies. The government has agreed to purchase 100% of the magnet offtake and has also guaranteed a profit margin for the company. This structure effectively removes all market risk and discipline for private investors.
When the U.S. government becomes a major shareholder, it can create significant challenges for a company's international operations. Foreign governments and customers may view the company with suspicion, raising concerns about data privacy, security, and its role as a potential tool of U.S. policy.
The government's equity stake in Intel replaced a milestone-based grant system. This delinks the funding from specific performance targets, like building fabs, converting the deal into a higher-risk bet on the company's overall success rather than a payment for specific outcomes.
As part of its equity deal with Intel, the U.S. government has agreed to vote its 9.9% stake according to the board's recommendations. This arrangement effectively hands the board a powerful, stable voting bloc, insulating management from shareholder activism and reinforcing the existing power structure.
Unlike the U.S. government's recent strategy of backing single "champions" like Intel, China's successful industrial policy in sectors like EVs involves funding numerous competing companies. This state-fostered domestic competition is a key driver of their rapid innovation and market dominance.
Historically, the U.S. government has only taken equity in private firms during bailouts with the goal of exiting quickly. Recent deals with companies like Intel represent a new strategy of long-term investment to bolster specific industries, a marked departure from past policy.