The U.S. government is taking a stake in Intel. It’s rare — and it has some risks

In the capitalist American economy, markets pick winners, and the federal government typically stays out of the way of business. But during times of crisis or war, the government has occasionally felt the need to step in.

During World War I and II, it seized rail and telegraph networks, and nationalized industries, like coal mining, when strikes threatened the war effort.

The Federal Deposit Insurance Corp, established in the wake of the Great Depression, has since taken over — and wound down — failing American banks with an eye towards protecting depositors and keeping the economy stable.

And when companies deemed “too big to fail,” including insurer AIG and automakers Chrysler and General Motors, teetered on the brink of collapse during the Great Financial Crisis of 2007-09, the government took ownership stakes in them to help prop them up.

In late August, the Trump administration took a page from this book — but with a twist.

The government took a roughly 10% stake in the chipmaker Intel, becoming its biggest single shareholder. The company designs and produces microchips that go into everything from self-driving cars to laptops.

The U.S., however, is facing no acute economic crisis or war. Instead, the government’s motivation is competition with China and the race for artificial intelligence, which have fueled a desire to boost American companies’ ability to make cutting-edge microchips at home.

Last year, then-president Biden funneled billions of dollars in grants to Intel via the CHIPS and Science Act. Now, The Trump administration is converting those and other grants into equity.

Intel’s long history

Michael Malone, author of The Intel Trinity: How Robert Noyce, Gordon Moore, and Andy Grove Built the World’s Most Important Company, says Intel invented the modern microchip. The company was founded in 1968 in Mountain View, California — along with the nascent computer-makers who relied on their chips, they helped build what is today known as Silicon Valley.

“Intel really ruled the chip world. Everybody else was, you know, planets next to the sun,” he said.

But the company failed to get in early on the smartphone boom, and later effectively missed the boat on chips for AI data centers. Now, Malone said, Taiwan’s TSMC leads the pack, followed by South Korea’s Samsung.

“They’re always just a little bit behind the other players,” he said.

“Intel has been trying to keep up. But, you know, in this business, everything turns over every couple of three years,” he continued. “So if you fall behind a generation, which is just a fraction of a decade, you can almost never catch up. And that’s where Intel finds itself.”

Despite that, analysts say Intel is still probably the best option the United States has for attempting to retake the lead in high-end chip manufacturing.

“Companies that can actually physically manufacture those advanced chips are very strategically important because there’s just not many of them,” said Jennifer Lind, a professor of government at Dartmouth College. “Intel is the only one in the U.S.”

Most other major chip players, including Nvidia and AMD, which make the most popular chipsets for AI development, do not manufacture anything. They ship designs to Taiwan where TSMC handles fabrication.

A push to onshore chipmaking

Jacob Feldgoise, an analyst at the Georgetown University Center for Security and Emerging Technology, said the idea behind propping up Intel and reigniting leading-edge chip manufacturing in the United States is to reduce the risk of “foreign supply shocks,” like the potential shutdown of overseas fabrication plants.

“That’s a general way to say the government is worried about China invading Taiwan and TSMC’s fabs being knocked offline,” he said.

Beijing considers Taiwan a part of China and has vowed to eventually unite the self-governed island with the mainland, by force if necessary. Experts say a forcible takeover would likely knock Taiwan’s chipmakers offline, temporarily if not longer term.

The other reason for the U.S. government to back Intel, Feldgoise said, is to reduce the risks posed by foreign-made chips in critical national security systems — even though Taiwan is a longstanding friend of the United States and South Korea is a treaty ally. For example, he said, one concern could be that missiles manufactured with foreign-made chips could have security vulnerabilities.

“Something could be inserted into it that causes the missile to fail,” he said.

Intel’s CEO Lip-Bu Tan said in a statement the company was grateful for the confidence that Trump and his administration have placed in Intel.

Lind, of Dartmouth, said government backing — often in the form of subsidies — can sometimes make a huge difference. “Exhibit A is Taiwan’s semiconductor industry,” she said. “The government basically said, ‘We are going to have a semiconductor industry,’ and, by God, they succeeded.”

John Dallesasse, a professor of Electrical and Computer Engineering at the University of Illinois at Urbana–Champaign, agrees. “The fact that there are other governments that are subsidizing chip manufacturing in their countries would argue that for us to even have a level playing field, some investment of government dollars is necessary,” he said.

“If we had zero capacity in semiconductors, it would be a big problem for the U.S. It would be a problem for our industry. It would be a problem for our defense,” he added.

The U.S. government deal with Intel will not give Washington voting or governance rights in the firm. And some analysts say an equity stake shows a level of commitment that grants, or a bail-out, do not.

Still, experts say robust government involvement carries risks, including the potential for political fallout, as happened after Obama-era corporate and bank bail-outs.

And Dallesasse said a substantial government equity stake also likely creates political pressure.

“How can that not play on the actions of the company, the decisions of the board, the decisions of the CEO?” he asked. “And what impact will the government putting their finger into the operations of the company have on what decisions the company makes, and whether those decisions are good business decisions or not?”

Lind said government intervention in business can lead to inefficiency, politicization, and favoritism, which could stifle innovation — which is exactly what the government wants from Intel.