Washington's chip stakes look like industrial policy on overdrive

Reuters

10 hours ago

LONDON, Aug 21 (Reuters) - Market talk may be of fiscal dominance in the U.S. debt market but Washington's startling moves to take a direct stake in its leading chipmakers look like industrial policy on overdrive - alarming some investors about where it might end.
For an administration that loudly espouses a credo of deregulated free markets, that's quite a look.
Donald Trump's second administration is proving anything but a "light touch" government - pursuing high trade barriers, greater control of monetary policy, heavy-handed re-industrialization, strict immigration controls and heightened national security priorities.
But taking direct stakes in leading U.S. companies is a whole different level, moving into territory most Western market economies have feared to tread for decades.
The White House confirmed on Tuesday that it's working on a deal that could see the U.S. government take a 10% stake in troubled chip giant Intel (INTC.O), opens new tab, less than two weeks after Trump had suggested its boss should step down over his China links.
Intel is the only integrated American firm currently capable of manufacturing leading-edge chips and its importance is underlined by the fact the world's premier producer - Taiwan Semiconductor Manufacturing Co (2330.TW), opens new tab - is caught in geopolitical crosshairs due to China's claim on the island.
Initially, the Intel deal looked like it might be a one-off, reflecting both the company's struggles and its strategic heft. But now the entire sector appears to be up for grabs.
According to Reuters sources, U.S. Commerce Secretary Howard Lutnick is considering having the government take equity stakes in other chipmakers in exchange for cash grants approved by former President Joe Biden's CHIPS Act, which was aimed at spurring factory-building in America.
The Commerce Department oversees the $52.7 billion CHIPS Act funds, much of which has not yet been disbursed to companies such as Micron (MU.O), opens new tab, Samsung (005930.KS), opens new tab, TSMC and Intel.
A widening government footprint in the corporate world, which Lutnick suggested would stop short of controlling stakes or even voting rights, follows a series of government moves on what it sees as critical companies and possibly revenue sources.
What looked to some like a government export tax was agreed with Nvidia (NVDA.O), opens new tab and Advanced Micro Devices (AMD.O), opens new tab last week, giving the U.S. government 15% of revenue from sales to China of certain advanced chips. The White House said it may expand this to other chip companies too.
Meanwhile, the Pentagon is slated to become the largest shareholder in a small mining company, MP Materials (MP.N), opens new tab, in a bid to boost output of rare earth magnets amid a tense standoff with China.
When it comes to Intel at least, investors seemed to welcome the plan as a way of steadying the shaky ship and the stock initially surged to a six-month high on the news - aided by an additional $2 billion investment from SoftBank.
However, the share price has since been dragged back down by a wider tech sector swoon.
The extent to which government dabbling in what it considers strategically important companies is partly responsible for this week's tech shakeout is unclear.
But obvious concerns about shareholders getting diluted by Uncle Sam and who or what Washington might next consider "strategic" are bound to have unnerved some investors.
Writing on the Intel proposals, Saxo Bank investment strategist Jacob Falkencrone said the structure of the deal would be as important as the move itself, though he noted that the shift in U.S. industrial policy from subsidies to ownership stakes was perhaps the biggest takeaway of all.
Indeed, government stakes in private companies have been a rarity since World War Two, only seen in scale recently when Washington was forced to plow funds into ailing banks and other firms as part of the financial rescue during the banking bust in 2008.
"Then, the motive was survival. Now, it's about resilience," Falkencrone said.
And even if outright nationalization is not on the agenda, government involvement could still impact capital allocation, export compliance and where chips are made.
"The broader point is this: if Washington is willing to take a stake in Intel, it may be prepared to do the same in other 'strategic' companies," Falkencrone said. "That's a shift worth considering across the portfolio – not just in semiconductors, but in any sector that could be deemed critical to national security in the years ahead."
Perhaps the most telling review of the moves came from U.S. Senator Bernie Sanders, a progressive Democrat, who on Wednesday threw his support behind Trump's chipmaker stakes.
"If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment," Sanders said.
Unfettered, free-wheeling capitalism may be alive and well in parts of the new economy, such as crypto markets, but it seems the West Wing will be breathing down the neck of the industrial world for some time to come.
The opinions expressed here are those of the author, a columnist for Reuters
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