Odd Lots - Why the Trump Administration is Now Taking Equity Stakes in American Companies

Episode Date: October 16, 2025

It's nothing new for the US government to use public money to support private American companies. The Biden administration, via CHIPS and the Inflation Reduction Act, was aggressive about using loans and grants to accelerate US industry. But the Trump administration has been engaged in something more novel: taking direct stakes in US companies like Intel and MP. But what is the legal basis for such action? And what are the advantages and disadvantages of direct equity stakes? On this episode, we speak with Peter Harrell, visiting scholar at the Georgetown Institute of International Economic Law. We discuss the structure of these new arrangements, and the advantages and disadvantages for the government to be a minority shareholder in publicly-traded companies. Read more:Intel Debuts New Technology in Make-or-Break Moment for CEO’s Turnaround BidUS Rare Earths Stocks Jump on Bets Government Will Keep Buying Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, isn't it you who said for a long time that whenever the government does some of these deals, like with chips or maybe the early backing of Tesla, et cetera, aren't you always like, why didn't the government get equity stakes in these companies? Why are we just getting back sort of loans that are more or less the same amount of money we put in?

Yeah, I think I have said that. Yeah. I mean, it seems like this weird sort of half ground where you are investing in a company without asking anything in return. Yeah. To be fair, they do have milestones and provisions and so forth. But yes, it does feel like some of these funding structures have been, I would say, at least incomplete to say the least. And the effectiveness has been inconsistent. All that being said, the Trump administration, apparently big fan of yours, listening to you over the years on the

podcast with some recent deals as sort of getting into the equity business in some way. Yeah. So I've seen people describing this as more activist industrial policy or state interventionist industrial policy. One thing I will say for a president who seems to like calling other people communists quite a lot, he sure does enjoy owning the means of production. Yeah. There's certainly some scrambling, right? Well, this is the other thing, the ideological scrambling has been interesting to watch because you had people like Bernie Sanders who were saying, well, the Intel deal is a great return for the American people. And then you had, I can't remember the name, but you had a Republican going like, oh, this is the end of capitalism.

So it's kind of funny to watch. It's super interesting, super confusing time. I'm not personally as bothered by the lack of, quote, taxpayer return on this stuff, mostly because I view the goal or failure is, is there going to be a public benefit? Are we going to have security because we can produce chips? Are we going to have security because we finance domestic? mining of rare earth minerals and so forth. But these are like the big questions. And I think we should learn more about this sort of new approach and what's a continuation of what we saw under Biden, what's different, et cetera, whether any of this will work. Of course, by the way, you know, we're talking about an intel. So Intel specifically, the government has taken some sort of warrant or something. I'm not totally sure on. They took shares, I think, almost a 10%

stick. Yeah. And also MP, which is, of course, the great hope for whether the U.S. could also mine or earth metals such as China. So pretty big deals. And I think we should talk about them. Can I just say if you look at the HDS function on Bloomberg, you can see that the United States government is now listed as a top shareholder. And if you click into it, it says U.S. Department of Commerce. I don't know why.

I just find that so like. That's amazing. I had not looked at that. Yeah. It's kind of funny. And I don't know. I just have this vision of like Howard Lutnik like checking on his portfolio of Intel every morning. You know, we're going to get an ETF.

Actually, unironically, our old friend Luke Kawa and Sherwood, he had a really good post yesterday pointing out the fact that, and it's very important, the shares of Intel and MP and one other one have done very well. So a lot of people are sort of making this trade of why would you not be in the same trade as the U.S. government? If the government does long intel in some respects, an MP, and given they're going to want to support their investment and see a return, why would you as a shareholder not want to sort of get ahead of that train or be on the same side? I'm looking at the Intel chart right now. It's gone up a lot. It's gone up a lot. So this is a meaty subject that we have to talk about further. So I'm very excited to say we have the perfect guest, someone who's been talking about this, someone who even recently contributed something to the Odd Lots newsletter, specifically about the MP deal. We are going to be speaking with Peter Harrell. He's a non-resident fellow at the Carnegie Endowment for International Peace. He was also serving in the Biden White House, a national security council, economic council. And he's going to talk us through these deals. So Peter, Thank you so much for coming on, odd lots. That's great to be on. Thanks for having me. Why don't you just sort of give us a very brief background or your background or your work

and why you're particularly interested in these deals, the arrangement? So I served at the Biden White House for the first two years or so of the administration doing industrial policy. And, you know, it's interesting. I'd actually gotten into the industrial policy file for the White House because back during the campaign in. 2020, I was advising the Biden campaign. And Brian Dees, who was with the campaign then, later became the National Economic Council Director, came to me and was like, you know, it's COVID times.

We have all these supply chain issues. You know, their podcasts and talk about the supply chain issues. Maybe we should do something about this. And so I actually on the campaign had put together what was a campaign pledge that then candidate Biden rolled out in mid-2020 on, you know, how you could strengthen American supply chains. And the downside of doing that is then you get to, you win the president wins the election. And Brian Dease calls you back up and says, hey, you remember that thing you did last summer? How would you like to come in and start getting industrial policy, along with a whole huge team of other people going in this country again? So just to sort of set the scene before we talk about why these deals are unusual in some respects,

can you talk about how government support of industry has happened in the past? Because I'm thinking about something like the Chips Act, I don't remember equity stakes ever being mentioned in that. What was the quid pro quo in these sorts of previous government deals? Yeah, and Tracy, I appreciated the comment you made in your opening about, you know, how you've talked previous about maybe there should be some government upside in when the government is investing money in some technology or some development of some industrial capacity. That is very, very unusual in American history. If you look at the history in the United States of government ownership of private sector companies,

it has almost always only been in the context of bailouts. So in the 1930s, a bunch of banks are failing. Some of the New Deal programs, in particular something called the Reconstruction Finance Corporation, take stakes in at least 40 percent or so of America's banks, again in the 1930s. But that's really fundamentally a bailout program for the banks because the banks are going under. Similarly, famous examples in more recent history in 1979, 1980, Chrysler's going bankrupt. It's part of a bailout of Chrysler. The government takes warrants in Chrysler. Then during 2008, in the financial crisis, as part of the bailouts of AIG and some of the other financial companies,

as well as some of the bailouts of automakers back then, government takes equity. But historically, we've only done it during kind of bailouts. And the government, when it is taking, taking these equity stakes as part of bailouts has always made clear our goal was to own this for as short a time as possible. Yeah, because I think I remember from the 2008 auto bailouts, those were warrants, right? The goal was always to like eventually get out of that position. Exactly. It was very clear, you know, you go back, you read both the Treasury Department guidance at the time, you read the press at the time, you read the statute, and it was kind of, we're going to take this as a security interest for the bailout, you know, for as short a time as possible. And the Treasury Department exited most of those positions within a couple of years,

certainly as soon as commercially feasible. And I think what the Trump administration is doing now is really quite different, where they seem to be seeing themselves, seeing the U.S. government as a long-term investor in a set of sectors in a set of companies where they think having that government capital as a long-term investor will help a strengthen the company in the sector and B potentially give some upside to the U.S. government. So what do you, with Intel and MP, what do you give the sort of broad, as you understand them, the broad stroke structure of these arrangements? What is the nature of these investments?

What are the obligations or the companies and so forth? Give us the sort of outline of them. Yeah, and Joe, to pick up on a point you had made during your introduction, it's not that the idea of government's support for chip manufacturing in the U.S. or for rare earths in the U. is new. I mean, there was a chips program under the Biden administration. There have going back for more than a decade now been programs to try to get U.S. rare earths processing. Historically, those things have been done through grants and loans, not equity. You know, so there was a grant to Intel to pay basically 15 percent. This is prior to the Trump administration. There's a grant

to Intel to pay basically 15 percent, one, five percent of the cost that Intel was going to incur to build four sets of fabs here in the United States. There were grants, again, prior to the Trump administration, to MP materials, to help subsidize MP materials building a rare earth's mine and processing facility. So we've historically done this through grants and loans. And as you say, the idea was the public return was, well, we have chip manufacturing in the U.S. or we have rare earths processing in the U.S. What the Trump administration has done is converted what were grant and loan programs into programs where as part of the grant or loan, the government is taking an equity stake. In the Intel case, it is taking a 9.9% equity stake in exchange for transferring the unallocated,

the unspent part of that previous Intel grant to Intel. So they, instead of dulling it out over years as Intel built the fab, they have now transferred just under $6 billion in cash to Intel and gotten equity in return. And they've also actually relieved Intel of some of its legal obligations to build the fab. So they're sort of converting this grant into an equity purchase. Similar with MP, the MP deal is extremely complicated. You know, I wrote a 4,000 word piece for you, along with my colleague, Arnaub, Dutta, on this. But basically, DOD has contracted with MP materials. The Department of Defense, or maybe we call it a Department of War now, has contracted

with MP materials to scale up a mine in California, to mine for rare earth, and then to scale up in both California and Texas, a processing facility to turn those rare earths into magnets, which are used in all kinds of industrial applications. And as part of this very large contract to pay MP materials, to scale up the mining and processing operations. The government, MP is given the government a 15% stake in MP. Defense Department's now the largest shareholder there. Just on the Intel deal, you mentioned that the grants and loans that were previously given under the Chips Act, those came with milestones that Intel had to meet, right, in terms of building fabs and actually

expanding manufacturing of semiconductors in the U.S. But under this new deal, those are now delinked from the equity stake, I guess. Do we have any sense of what the Trump administration's actual goals are in this deal? Because I could understand, you know, if they give a company money and they say, you have to do the following things to expand production, that would make sense. But if they say have some money and make sure you give us a shareholder return, that seems a little bit different. It is a different deal. As you say, Tracy, the original deal between the Commerce Department and Intel was planning to dole out about $8 billion over a number of years with the payments to Intel, at that time, grant payments made to Intel as Intel met certain agreed milestones for how they

were building out four sets of fabs, Ohio, Arizona, New Mexico, and Oregon. According to the SEC filings that Intel has made, Intel is now, as we discussed, relieved of those milestone obligations. Now, I think the Trump administration's view is that, well, by injecting capital into Intel, by taking an equity stake in Intel, we, the U.S. government are sending a very strong signal of support to Intel, both gives them some capital up front, but it also gives them this very strong signal of support that will help Intel go around and, you know, get customers, get other investors to come in. They are now, they also now have Nvidia coming in as an investor. So there's a little bit of a record already to suggest that might be happening. But it's kind of rather than,

here are things we want you to do. We will pay you for milestones. It is more of an approach of we're going to bet on you as a company and hope that our bet on you helps you succeed over time. As you said, they're actually up. The government's stake is up, I think, 60%. So it's, you know, cash-wise turned out okay for them so far. Yeah, I was going to say, it's been a good trade. And maybe, some of the reason that the stock has rallied. Maybe it's just the sort of pure logic, as you expressed, or it could just be sort of like, it could be sort of meme stock traders. People are excited about here's a thing that's going on where I just want to be in on the trade. From your perspective, though, do you see something about the structure of this deal such that, frankly,

that there's reason to be more hopeful about Intel's future in this arrangement, just on a fundamentals basis? So I think of this is a very high risk bet in the following ways. If you go and talk to pretty much anyone in the semiconductor industry, and if you've talked to them and you guys have talked to them over the last couple of years, you hear a lot of concern about Intel's health. You know, Intel made a couple of huge strategic missteps. They decided in 2007 that they did not want to produce chips for the iPhone. You know, huge strategic misstep. They decided in the mid-2010s, but they were not going to bet on something called EUV lithography, which is advanced lithography that TSM uses to make what are today, hands down, the world's most advanced chips. And over the last

couple of years, Intel has been playing a huge catch-up game. And there have been very deep doubts across the industry about whether Intel can actually do this catch-up game. I think the government's theory here is, well, if we show support for Intel, we can encourage, you know, other investors to come in. We can encourage the potential customers of Intel chips to come in, you know, Apple and Nvidia, we can encourage customers to come in and we can really bet on this company and help get them, not just the capital, but also the customers. and other things they need to turn it around.

That's the bet. Something you pointed out in your piece for us on MP, and other people have talked about this as well, but that deal provides like an order book. The government is going to buy more. And we've talked about this with other guests that it's not just enough in some of these cases to subsidize supply or make it easier to build,

but it also helps to have that guaranteed buyer for several years out, et cetera, and so that when something is produced, there is knowledge of an end customer. Is there any such provision or relation in the Intel deal in terms of if they build X that there will be a buyer for X? No. So in the Intel deal, there's no kind of guaranteed end customer government support for the end customer. With one exception, I mean, going back to the Biden administration days, there's been a little piece of this deal that is actually not with the commerce departments with the defense department to build highly secure chips for the Pentagon. Like there, there is obviously a guaranteed customer, but that's a small piece of this deal.

Could you argue that Intel's main problem isn't necessarily cash in the first place? I think it has something like $10 billion in cash on its balance sheet, which is probably a drop in the ocean if you're building fabs. But on the other hand, you know, there is a lot of capital crowding into the semiconductor space. And it seems, given some of the missteps that the company has made, previously, maybe the issue is more management than actual. balance sheet health. Yeah. So when I look at Intel, I think its biggest problems aren't really access to capital, as you say. I mean, even prior to the government investment is a $100 billion market cap company. It could raise money in the debt markets. The biggest problems were, can it do the engineering to build advanced chips? Like, that's problem number one. Can it actually

do the thing it says it's going to do? Exactly. And related to that, or they're going to be customers to buy Intel's chips. And those two things are obviously totally linked because if it can't do the engineering, there won't be customers. And if it can't do the engineering, there probably will be customers. I mean, I think the big risk with the Intel deal is that we definitely have an instance here of the government picking a winner, right? They are placing a huge bet on Intel and not on TSM and not on, you know, startup semiconductor companies that might have. actually be more innovative in this space. And that is something, you know, the government is not historically done. You know, historically we've kind of said we want to let companies go out and

compete in the marketplace and we're not going to put a very heavy thumb on the scale in favor of one particular kind of, you know, champion company here. And we are very much seeing the government, even though it's not a formal contract here, clearly the impetus now is for the government to be putting a thumb on the scale here for Intel and hope that helps them get customers and engineers and the like. What legal authority does the Trump administration actually have to do this? So we spoke about the Chips Act. Pretty sure the Chips Act doesn't say anything about taking equity stakes in return for grants and loans. Could it be something like the Defense Production Act or some other act that I am unaware of that might be in the making? Well, you know, we talked about how there isn't a lot of history

for the U.S. government taking equity stakes. And there's not really any law out there that authorizes the government to take equity stakes in private companies with a handful of exceptions. And the Chips Act is not one of them. I think the Trump administration's legal theory here basically boils down to two things. You know, first is, well, the Chips Act may not say we can take an equity stake, but it doesn't forbid us from taking an equity stake. So why not? And then thing two on their legal theory is, who's going to sue us anyway? I mean, Intel's not going to sue us, right? They just agreed to this deal. It's not clear that anyone else really has legal standing to go into court to sue over this. So, you know, like much of the Trump administration, I think we are seeing a lot of novel interpretive

approaches to the law. But it really does boil down to, I think, at its core, there's no, they have a very flexible authority, legally speaking, they have a very flexible grant authority. It was clearly intended to say grant authority, not an equity authority. But if you read the details of the grant authority, it doesn't say you cannot. take equity as a part of this. It just says you can give grants. And they've interpreted that as allowing them to take equity as part of the grant. I want to go back to the question about whether the engineering capacity actually exists for Intel to become a top flight producer of

semiconductors. Again, you know, you mentioned the, quote, strategic missteps, whether it was choosing not to build the chips for the iPhone or to get into advanced UV lithography. But again, they could have chosen to do those things and not execute on them. Like they could have made different strategic choices and just not done them as well as CSMC. And this also gets back to the MP deal because, okay, like there is this big mine out in California that's very rich in rare earths and so forth. But a lot of the question is not whether you can dig it out of the ground, but whether you can refine these metals at a cost competitive price, especially compared to the Chinese who have invested a ton of this and are clearly far in a

the leader and the most advanced infrastructure, et cetera, they're like, I'm curious with that deal. Like, with MP, do you perceive them as having the same questions hanging over them about whether, okay, they get this money and they have this mine? Can they create these magnets at a market competitive price? Well, I think that the MP Materials deal sort of ensures that they are not going to create these magnets at a market competitive price. But at some level, that doesn't matter because the government has agreed. both to purchase all of the offtake of the magnet.

So part of this deal of government is buying 100% of the magnets. Now, it could resell some of these magnets to private parties, but it's a guaranteed purchaser of all of them. And on top of being the guaranteed purchaser of the magnets, it has also guaranteed profit margin for MP. So I actually kind of get why private investors are crowding into MP because it's sort of a no-lose business proposition at this point. But I do think the reality, your point, Joe, is that, that,

China is the low-cost producer of rare earth magnets. It just is. It has the scale. It has multiple companies that do it. And the best. It has the engineering. It has no low environmental, regular. It is the low-cost producer.

If we as the United States do not want to be dependent on China for rare earth magnets, we are going to have, at least in the near and midterm, to pay more for those magnets. And so that subsidy is either going to have to be a direct subsidy from the U.S. government like the MP Materials deal, or it's going to have to be an indirect subsidy like tariffs or something else that forces U.S. manufacturers to, you know, pay U.S. producers because they're protected from foreign competition. And that's just the reality of this market. And then you get into this whole debate of, you know, are the national security needs, are the economic security needs so great that it is worth paying what will be a subsidy to have

that production here in the U.S. Well, talk to us about the corporate governance angle. in all of this. So with Intel, the U.S. government is getting a 9.9% stake. They also, I think, have a golden share like they do in the NEPON deal. Again, that's something that we tend to associate with China's state interventionist style. And we should talk about that a little bit later. But is Howard Lutnik going to be showing up to Intel AGMs and participating in the votes? This is another thing that worries me, Tracy, about the government taking equity. in companies without kind of a clear statutory basis for it, because there isn't really any federal set of regulations or laws about how the government should manage its investments

and what its role in corporate governance should be. So we're sort of seeing ad hoc approaches as the government does these deals. So in the Intel case, if you read the SEC filings, the government has basically agreed to vote the shares, the way the board, recommends the shares be voted, except in a couple of major types of transactions, like an overall change, control, you know, change in ownership, a control transaction. So that's a great deal for the board, because actually now the board of Intel knows it has 10% or 9.9% of the shares to do whatever it wants. It's a great deal for the board. But that's unique to the Intel deal. And it will be interesting to see, as these play out, do we see more and more kind of direct

government, you know, involvement in the management of the companies. It's interesting. One of the things that I think about sometimes, so the corporate income tax rate in the United States is 21%. Now, if I own 21% of a private company, right, I'm in theory entitled to 21% of their income. It's kind of one way to think about it. In a sense, the U.S. government already owns about a fifth of every private company in America, right? Because you have your profits and then 79% goes to the normal shareholders, then 21% goes to the government. There is a sense in which the government already owns a fifth of every company through taxation.

The difference is, however, exactly what you just identified, which is this is a very passive equity stake that the government sort of has in every company. So what's really changing is this potential, not that the government is going to collect income from the profits, but this potential for new for sort of activist involvement in the private sector beyond the sort of traditional regulatory or legal environment that exists. Yeah, and it is both that this is going to give potentially the government a way of meddling much more specifically and with much more detail in individual companies. And it also is much more of the government potentially picking winners within an industry.

I mean, let's take MP. You know, MP is one of, it's not the only company in the U.S. that is trying to get rare earth's mining and manufacturing going again. There are a number of other companies that are doing this with mining operations elsewhere in the U.S. And there are also some companies that are in the technology space that are saying, you know what, we might be able to create magnets that do what rare earth magnets do, but without using any rare earths.

We have, you know, we're developing new materials. And the government here, rather than sort of saying, you know, what, we have a program, we're giving a tax incentive to anybody. who qualifies to kind of let all of these ideas flourish. The government is saying, you know, we're guaranteeing that MP's going to make the money here. Without actually knowing, is MP like the most cost efficient, the best technological bet? It is very much a picking winners and losers rather than seeing what flourishes in the market approach. Do we have any sense of how foreign governments and foreign businesses are reacting to this?

So I'm aware that Intel put out a statement that basically warned that having, the U.S. government as a major shareholder could be problematic for the company. It could lead to maybe additional regulations or obligations or restrictions abroad. Have you picked up any, I guess, a scuttle butt on how, is scuttlebutt too weird a word? No, it's great. It's a great word. All right. All right. Any scuttle butt on how foreign entities are reacting? So I do think foreign governments are worried about what it means that the U.S. government is investing in specific companies, and they're worried about it in two ways, one of which is just like the classic governments worry about what other government subsidies are going to do. You know, if there's more

subsidies for Intel, how is that going to affect European manufacturing? Also, Intel in particular had been planning to build fabs in Europe, actually prior to the U.S. government buy-in, had canceled those fabs in Europe, but there's worry, like, would Intel still be a reliable partner if it is investing overseas or is it just going to invest in the U.S. now that it's U.S. government owned? And then the other one is, I do think that for companies, particularly technology companies, you know, we are in this era of geopolitics where we worry a lot about Chinese companies or Chinese companies worry about the security issues around American companies. I think European companies are increasingly getting worried about, you know, is American tech safe to be used? And the closer

the U.S. government gets to a company, I think the more you're going to see foreign governments wonder about those security risks. I mean, I just look at what Microsoft had to do a couple of months ago, where they actually said in response to European privacy concerns about Microsoft products in Europe, that Microsoft would be prepared to sue the U.S. government if the U.S. government started putting unfair privacy requests on Microsoft about European customers. I don't think anyone would believe that Intel is going to sue the U.S. government at this point to protect the privacy rights of its customers. So you mentioned the issue of picking winners, which of course is an issue that precedes any equity stake. Every industrial policy in the world always has to think about this risk or possibility.

And traditionally, the way it sometimes, quote, works in the context of sort of developing economies is they might have that sort of export test. And we've talked about that a bunch on the show. Are customers in foreign markets buying your thing? And if so, that's a sign that you're building something competitive. And we're going to keep backing you. And if not, this is a sign that you're not working out. And so there's this mechanism. If we're concerned about the idea that the government is picking winners with MP or picking

winners with Intel, let's say again with MP, should the direction be that not that we get rid of the equity component, but that we just sort of build out the program so that any entity at any stage could theoretically make the U.S. government a partner, and that partnership is contingent on its success in some market measure. Well, I guess I look at that as Joe, you know, you talked about taxes earlier. Isn't that what a tax credit's for? I mean, if you look at the Chips Act, the original Chips Act, we all focused on the grant part of the Chips Act, and this is the grant part of the Chips Act that we're talking about now. But actually, I think the more important part of the Chips Act is there was a 25% investment tax credit that lets anybody,

building a fab in the U.S. Take 25% of the cost of that fab as a fully refundable tax credit. So, I mean, it's just a very great deal. I guess I actually, as a general bias, would prefer relatively more neutral approaches that let companies thrive and succeed in the marketplace. And where you do have grant programs, there will always be a place for grant programs, I think you want to do it in a fairly broad-based way. and seed multiple different ideas. I mean, I've been talking just recently with Jigger Shaw, previous guests in your podcast about his time at LPO.

And he, you know, he had this approach. He's like, I wanted to say yes to everybody. You know, anybody who could fit the criteria of getting a loan, I wanted to say yes to because we want to place a bunch of different bets on a bunch of different technologies on a bunch of different investments. And, you know, I think there's a lot to be said for that, which is also historically, how we have come. Now, maybe there are rare cases, if there's a market failure, there's some

sort of market where there's going to be a natural monopoly. Maybe in those cases, it does make sense. You know, there's a natural monopoly or some kind of market failure, then you're only going to have one or two potentially successful companies. Maybe you do want the government to take a stake there because if it's kind of guaranteeing the market some upside for the taxpayer makes sense. But I generally think that should be a pretty rare instance in our in our capitalist system. So there is an irony here that an administration, which has been very critical of China and, you know, criticize them for manipulating their market or cheating on global trade rules or doing illegal subsidies and all of that kind of stuff is now pursuing a more interventionist approach

that does seem very reminiscent of what happens in China. Can you compare and contrast those two systems and maybe talk about how U.S. policymakers are thinking about Chinese industrial policy at the moment? I mean, there is kind of an element here. We're looking a little bit like state capitalism with American characteristics. I think we should be, you know, open and direct about that. There are actually some differences. I mean, if you look at the Chinese industrial policy kind of approach, there are both

similarities and differences. I think one big difference is actually when it comes to equity stakes in China, I mean, a lot of the equity is actually done at the provincial government level. You know, it's sort of an SOE that's owned by a particular province, relatively less at the central government level in China. The central government does tend to do a bunch of, you know, grants and R&D programs and that kind of thing. But they have a very heavy provincial level element to these.

The other thing that I think China does, frankly, pretty well, kind of to where we just were talking, Tracy and Joe, is China does tend to bet on multiple companies. If you look at why they have a very successful EV sector right now, it is in part because you had lots of provinces investing in lots of companies plus a tremendous amount of central government support on the demand side as well as on the supply side of the equation. So you have dozens of EV companies there out in the marketplace battling every week to build better technology and to sell it to customers. So they've kind of created this state capitalism, but state capitalism that is actually,

in some of these sectors quite competitive in a way that spurs innovation. And I think if we're going to do more of that, we need to make sure we are also focusing on how do we keep this competitive to spur innovation and don't just kind of, you know, back a bunch of flabby 1970s European-style national champions, which, you know, didn't turn out too well in the past. Now's the time to start a lean and mean fab, Joe. We've, oh, have I ever told you my, you have fabulous semiconductor, fab, a pod? Although that wouldn't be with a fab.

But I do think that'd be a good name for a chips company. That would be great. Fabless semi. Fabulous. Anyway, actually, we've never talked about those 1970s European champions too much on this show. What's the story there? I don't know anything about them.

Well, I'm being a little bit buzzet, but you did see in that you're, you know, in Europe in 1970s, you saw state ownership and a number of industrial firms. You saw fairly heavily state management in a way that I think a lot of economists looking at that thought did not make for economic, you know, sort of the most dynamic. over time, innovative industrial programs in Europe. Two quick questions. So so far, these deals seem to be sort of ad hoc individualized one-offs, right? And I'm curious if you have a sense that we're building towards something that's much

more broad, a much more sustained model of, I guess, U.S. interventionist involvement in the sphere of strategically important companies. And then secondly, what happens to these stakes if we get to. a new administration and the Democrats come in or something like that. Yeah. So I think when this administration came into, when the Trump administration came into office, I think they actually fairly early had identified a handful of areas where they thought equity was appropriate.

And I think critical minerals is one of those. And I think that that is guided in part by a view that we aren't going to have a domestic competitive market in critical minerals without either subsidies. or without a tariff wall because China just is the low-cost producer. So I think there was kind of a strategic view of we're going to do a lot of investing in critical minerals. We're going to do a lot of protectionism or other kinds of subsidies for these guys. But because we as the government are creating this market and it's not really a free market,

we as the government should also take some equity and have some upside. So I think there was a strategic view in that sector. I think what we are seeing now is the Trump administration is drastically, broadening out its views of what sectors the government should get involved in. You know, we see that with the Intel deal. I'd also note just last week, the Chips Office, Chips Office at the Commerce Department put out a notice of a new grant program for semiconductor R&D. So not to build fabs, but to do R&D program for semiconductors.

And that notice says right in it that bidders for these grants may be expected to offer the government warrants or equity as a piece. of it. So they are clearly looking to build this out. We obviously also earlier this year when Nippon Steel bought into U.S. Steel saw the non-economic golden share that Nippon Steel got. I think we're going to see more of that in the Sipheus context. So I think they had a vision early on of a couple of discrete areas. I take it from the president and Secretary Lutnik and others just really like this concept. And they are now in the process of broadening it out quite a bit across a number of other sectors, and they are probably broadening it out ahead of any strategic vision.

So I'm a little worried that we're going to see more of this. And then they'll have to try to backend some strategic vision after they have a number of these deals in the latter. Well, let's say they expanded or let's say, okay, maybe we want to have multiple stakes in the same industry, such that there is some competition, et cetera. How much firepower does the government have? How much capacity via the chips act does it have to make deals? like this, what would it, would it at some point need to get a fresh allocation from Congress to

spend more on this? How much can it do? Yeah, well, because their legal theory is kind of, no one says we can't do this when we spend money, we're going to do it. I think there are ways in which they could argue, well, we could, we could try to demand equity alongside lots of government spending and grants programs. And we've even seen Secretary Lutnik talk about, well, maybe the defense contractors should give us equity. The problem they're going to run into is at some point, you know, the amount of cash they're putting on the table for a particular deal, a company is going to decide, you know, what, that's not worth it to me, right?

If you're offering some company, you know, a major multinational, $50 million to, and grant money to, you know, do something you want them to do, but you also want three percent. They're just going to say no. But like when we, you know, when we talked about the LPO back of the day, you know, There was a fixed amount of money that had been allocated to these various programs. And same with chips, et cetera. Like, how deep is that well if the government wants to do a lot more chips deals? I don't even know if it does.

Maybe it just wants to pick a winner. Does it have the sort of, I guess they would say in the private sector context, dry powder to do more of these deals? So you'd have to, I'd actually have to ladder that up and think about what are the different pots of money they could potentially use here. They clearly have another probably on the order of $10 billion of unallocated chips money, LPO, mostly a lending facility, but they still have lots of unallocated lending power out of LPO. Now, because that's a lending facility, not a grant facility, kind of whether a company wants to give equity as part of a loan, that's a complicated commercial view. But there is some money now. They could say it's a convert. And this counts as lending.

But right, they, because again, under the theory, you know who's going to stop them, right? I mean, that is their theory. Yeah. Does Intel have basically a shadow mandate now? Because if I think about companies in the U.S., the goal is to maximize shareholder value. And that's been pretty explicit over time. But now you're adding in, you know, strategic ambitions and the public good aspect to Joe's point. Is there a potential tension there?

I think Intel has obviously tried to protect itself from that tension by negotiating this provision where by and large the government has agreed to vote its shares at the board's direction. I think you can see they were trying to minimize political influence. There is another part of the Intel deal where actually there's kind of a poison pill if against Intel splitting apart its fab manufacturing part and its chip design part. there's been a long debate around Intel about whether it should split itself up or not. And the government did negotiate kind of a poison pill against a split. So that that is incorporated fully in the documents.

But beyond that, Intel, I think, has tried to minimize government influence in state-to-day operations. That's that this is a government that wants to get involved in day-to-day corporate operations, right? We see the president talking about individual executives at individual companies. And a Commerce Secretary is very clear. company should be doing things in the public interest. And I think the board is clearly probably going to feel some pressure that not just the government, but also the government and its largest shareholder, one of its largest shareholders are going to be prodding it to do things that might be in what they see as the Commerce Department or the country's interest, even if those aren't in

shareholder interest. I think we are going to see that tension over the next couple of years, even if Intel has tried to insulate itself from that. All right. Peter Harrell, this was a fantastic overview. I definitely have a much, I feel like I understand these deals much better than before. Really appreciate you coming on Aultma. That was great to be on. Thanks so much for having me. You know, Tracy, I think the point that you asked about, how might this change under, say, a Democratic administration is, to my mind, one of the most interesting questions. Because, like I said, the government already gets a fifth of corporate profits. The government already can establish rules and regulations via the regulatory process or the legislative process.

about how companies work. What's new really to me is the specificity. This is about one company in particular and the ability to sort of circumvent Congress in the management of individual companies and that it's not easy to change regulation or law with each administration. But if equity stakes allow you to change how you interact with the specific company, then you could really have very fast shifts from one presidency to another. Yeah. I mean, I think there's also an optics element in here where if the administration said we're going to raise the corporate tax rate, that would be unpopular. But if they say we're going to create shareholder value for the U.S. citizens. Yeah, exactly. It plays a little bit differently. I do think, you know, my last question about the tension between

being a strategic asset for the U.S. government and the wider U.S. population versus being a company that's all about profits and maximizing shareholder value, I think that's a really interesting. interesting one, because again, I think back to China. Yeah. And China, the compromise there seems to be that you have a very state interventionist system. Yeah. But on the other hand, no one seems to expect companies to be massively profitable, right? We spoke with Dan Wong about this. Like maybe the Chinese system is, you know, we build lots of

stuff, we innovate and don't make that much money. And I just don't know, like, how that works in the U.S. No, it's a great question. I mean, think about it, you know, from Intel's perspective, had it not been for the Chips Act, or had it not been for all of the concern about national security and U.S. production, at some point, the company might have decided, you know what, we're going to be fabulous too, like Nvidia is, whose market cap is, you know, whatever, 40 times as much. And it could have been very much the case that Intel today would be worth more as a company. Speaking of strategic missteps, could be worth more as a company if it had never got into the Fab game at all, that if they just decided, you know, we're going to have all of our chips be made overseas by TSM and others. So there is this thing that maybe the company is worth less today because they've had this concern. They've had this national security obligation that they've played along with. We should we should leave it there. I'm starting to get PTSD flashbacks to my dad complaining about paying his taxes in order to bail out his competitor airlines. Oh, that's funny.

He always used to complain about that. He worked at Southwest, which was one of the few airlines that never actually went bankrupt. Oh, right. I do wonder, like, when Peter talked about standing to sue, competitors, plausibly, right? Couldn't, like, a Samsung U.S. or an AMD or whatever? I don't know. I think an ambitious lawyer would probably be interested in that case. But I think probably an ambitious CEO does not want to get on the bad, you know, they might want to take a feed at the trough too one day.

and so maybe they let this one slide. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Oddlots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthall.

You can follow me at the stalwart. Follow our guest Peter Harrell. He's at Peter Harrell. Follow our producers, Carmen Roderriguez, at Carmen Armid, Dashel Bennett and Dashbot and Kale Brooks. For more OddLod's content, go to Bloomberg.com slash OddLot.

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