America’s New State-Backed Capitalism

Silicon Wafer | (Via: Seiemens)

America has long been heralded as the champion of capitalism, a birthplace of innovation resulting from free market ideals, risk-taking, and competition. 

In late August, the US government acquired a 9.9% equity stake in Intel, becoming the majority owner of America’s largest semiconductor manufacturer. By taking an ownership stake in Intel, the U.S. becomes not just a rule enforcer but a player in the game, a choice that undermines domestic competition and Intel’s international credibility. In taking steps towards state-backed capitalism, America becomes exactly what it has long criticized other countries for doing. 

The deal materialized as Intel’s CEO came under fire for alleged ties to China, in a tweet by President Trump. A subsequent meeting and the deal itself instantly absolved any “national security” concerns about the CEO’s alleged connections with China. 

The US government stake in Intel was in exchange for $9 billion in grants that were already en route to Intel from the CHIPS Act under the Biden administration. The government obtained those shares at a below-market rate, purchasing the shares at $20.47 instead of the market closing rate for that day, $24.80. This discount, as well as the issuance of new shares, diluted the equity of existing Intel shareholders, who had no voice in the deal. 

The government’s stake in Intel is passive, meaning it does not have a direct voice in Intel’s decisions. But clearly, it does not need it, given that all it took for the government to secure the initial deal was a tweet by President Trump calling for the resignation of Intel’s CEO. 

Intel has become a big topic of interest for the US government over the past few years, as the company has shown decreasing revenue and lackluster changes. However, moves by both the Biden and Trump administrations have sought to bring Intel back to the forefront of US tech. Moves that are made in hopes of bolstering American manufacturing and removing dependence on overseas chip manufacturers like TSCM. 

Preferential treatment for private companies from the government has a storied history in the US, from the bailouts of big banks and auto manufacturers in 2008, to agricultural cartels, Tesla’s massive revitalizing loan in 2010, the bailouts of Lockheed Martin in the 1970s, government contracts that propped up defense companies, and many more. Nevertheless, the Intel deal is different. It is not just a temporary bailout or a low-interest loan; it is a continued and long-term entanglement with a publicly traded company, along with expectations of continued support and huge favorable treatment. 

Such preferential treatment of one company undermines the level playing field that capitalism and efficiency depend on. The equity deal doubles down on Intel’s advantage, given by the original allocation of money from the CHIPS Act. Washington has essentially given Intel an implicit guarantee of future intervention, turning Intel not just into a major industry player, but the industry player. Investors may flock to Intel not for its performance but purely on the assumption that Washington will step in if Intel falters, creating moral hazard and fundamentally distorting the market in Intel’s favor. 

Furthermore, Intel’s success after its construction of manufacturing plants in America, using CHIPS grants, is also dependent on finding customers for those chips. Thus, the US government will have an interest in finding Intel customers. A possible pipeline to more coercion in the form of export controls and legal requirements, pushing companies to purchase from Intel not because of economic efficiency, but to curry political favor. 

However, this may not be what is best for Intel. State-backed firms are often treated differently in global markets, facing trade barriers and restrictions from governments that view them as unfairly competitive and destructive to domestic industry. Ironically, the US has long criticized countries like China for its hyper-competitive state-sponsored firms, something that the current administration has sought to crack down on. 

In addition, China may be hesitant to do business with Intel in the future, using national security concerns over Washington’s stake in Intel as a pretext to block products and impose trade controls on Intel. In fact, the recent agreement between the US government and NVIDIA over its Chinese revenue has made China reluctant to buy chips due to concerns over chip security. This could spell disaster for Intel, with China being its largest revenue source. 

The deal comes as the Trump administration has repeatedly imposed unconventional plans at the intersection of government and business. The administration finalized similar interventions like the aforementioned NVIDIA deal, a “golden share” in Nippon Steel following the buyout of US Steel, and not to mention countless threats and coercive tactics to force firms to invest in America. Many of these threats provide advantages to large companies that dodge protectionist penalties by pledging large domestic investments, penalties that smaller businesses will suffer through. 

Ushering in American state-backed capitalism in multinational firms will continue to worsen US international business integrity and destroy competition at home. America is becoming a race not of innovation from competition, but of a frantic effort to appease the current administration, whilst destroying competition in its wake.