UK’s Stake in Intel: A New Industrial Strategy?

Introduction to the Investment

The U.S. government has recently become the largest shareholder in Intel. This significant move raises questions about what’s next for the California-based chipmaker. Notably, this action occurs after Intel has struggled to keep pace with competitors like Nvidia and AMD.

The Investment’s Background

Interestingly, on a fine Friday, the Trump administration disclosed it had taken a 10% stake in Intel. Over the past five years, Intel’s shares dwindled by more than 50%. Despite these facts, Intel’s share price has risen about 4% following the announcement.

Lack of Clarity from the Administration

The administration has been rather vague regarding the future of this investment. They haven’t disclosed when, or if, the shares will be sold, nor if dividends will benefit the U.S., given Intel hasn’t paid any since last year. Furthermore, there’s no intention to take board seats, though they may vote against Intel in certain cases.

Motivations Behind the Move

Commerce Secretary Howard Lutnick hinted at national security as a primary motivator. Yet, Trump expressed optimism about the financial gains, claiming on Truth Social that these deals could enrich the USA and boost jobs.

Not a Complete Takeover

This stake doesn’t translate into complete government control of Intel. Past incidents of government control occurred during crises, unlike this market-driven approach. President Wilson, for instance, nationalized railroads during WWI, and the 2008-2009 financial crisis saw government bailouts of private firms.

Expansion of Presidential Authority

Some experts view this as an unprecedented expansion of presidential authority into business. Trump has already secured a “golden share” in Japan’s Nippon Steel and invested $400 million in MP Materials, becoming its largest shareholder. Additionally, there are plans to take a share of sales made by chipmakers Nvidia and AMD in China.

Discussions on Sovereign Wealth Fund

Kevin Hassett, director of Trump’s National Economic Council, mentioned that such deals could form the basis of a sovereign wealth fund. This idea, floated previously, aims to give U.S. taxpayers stakes in firms, although it remains undeveloped.

The Prospect of Future Deals

According to Hassett on CNBC, more transactions might follow in various industries. Trump expressed hopes for more deals like the one with Intel, underscoring his vision of its potential benefits.

Comparing Past Government Investments

The U.S. has a history of subsidies to private firms, such as loans to Solyndra and Tesla under the Obama administration. Tesla thrived, but Solyndra went bankrupt. Some argue a stake in Tesla could have been beneficial.

Opinions on Government Role

Dan Reicher, former Energy Department official, noted that this approach diverges from the traditionally free-market orientation of American enterprise. Historically, allowing companies to run operations based on financial performance has proven more effective.

Intel’s Current Challenges

Intel’s situation remains challenging, with a $3.2 billion loss in Q2. Furthermore, it announced massive layoffs and delays in completing a $28 billion chip plant in Ohio. In a recent securities filing, Intel warned of potential risks, such as limitations on future grant eligibility and possible international sales impacts.

Conclusion: A New Industrial Policy?

When asked if this investment marks a new industrial policy approach, Trump affirmed, “I want to try to get as much as I can.” This move may indeed signal a shift in how the U.S. engages with industrial policy, albeit in a rather unorthodox manner.