August 25, 2025 | Michael R. Strain

The writer is director of economic policy studies at the American Enterprise Institute

During the 2008 financial crisis, the US government spent and risked taxpayer dollars to stop financial institutions and carmakers from going out of business. Those policies were enacted during a crisis and were designed to be temporary. President Donald Trump’s deal to have the government take a 10 per cent stake in Intel is not temporary.

Are we in a crisis? Many economists, including me, would say no. But politicians in both parties have claimed the opposite, arguing that the US is too reliant on semiconductors made in Taiwan and exposed to Chinese security threats. Manufacturing leading-edge chips, they argue, should take place in the US.

Trump’s recent deal with chipmakers Nvidia and AMD, however, suggests security concerns are being used by the president as a fig leaf for rank corporate shakedowns. In that deal, Trump agreed to allow Nvidia and AMD to sell H20 and MI308 AI chips to China in exchange for the Treasury receiving 15 per cent of the revenue. Security is clearly not the president’s motivating concern.

Troublingly, the government might have its eye on equity stakes beyond Intel. Commerce secretary Howard Lutnick is reportedly exploring government stakes in other semiconductor manufacturers that received Biden-era Chips Act subsidies, such as TSMC and Samsung. 

This all strikes me as not so much a strategic embrace of state capitalism as an opportunistic attempt by Trump to “get the best deal” in one-off situations. The existing deals are worrying enough. But Trump’s actions also create a troubling precedent.

Expanded state involvement will create serious challenges for the companies on the receiving end of it. Diverting time and energy from competing in the market to pleasing the president might work in the short term, as Intel’s increasing share price has indicated. But the need for political support could make it harder for the chipmaker to enact needed changes to stay competitive, including politically unpopular moves like closing plants and laying off workers. The pace of innovation will decelerate. Over the long term, this will be a bad deal for the taxpayer.

Trump’s escalation of government intervention in the economy makes it important to step back and ask three foundational questions.

First, can the US actually achieve the goals it seeks? Building up domestic chip manufacturing would require decades of policy continuity from administrations of both parties. Is this possible when parties are divided, policy is made by presidential whim and long-term corporate planning is limited by the four-year presidential election cycle?

Intel, our would-be national chips champion, is struggling, having announced a 15 per cent cut of its workforce last year. It is planning on cutting an additional 20 per cent this year. A fundamental question: why should it get $8.9bn of taxpayer’s money? Are there not better uses of those funds?

Second, even if the Chips Act succeeds, will it make America safer and more resilient? Optimistic estimates suggest it could help the US to produce 28 per cent of cutting-edge chips by 2032. In the event that China tried to cut off US access, would the US be qualitatively better off if 72 per cent, rather than 100 per cent, of cutting-edge chips were produced in other nations?

Finally: what kind of society does America wish to be? In a free society, advancing and preserving economic liberty is a proper goal of government. Taking unnecessary equity stakes in private companies is a clear threat to that goal. 

Beyond equity stakes in chip manufacturers, the Treasury secretary has suggested more deals like the Intel one with Nvidia and AMD may be coming. The US reached a deal last month to acquire a 15 per cent stake in rare earths miner MP Materials. Insisting on a golden share to allow Nippon Steel, the Japanese manufacturer, to acquire US Steel is similarly objectionable and troubling. 

The severe flaws in China’s model of state capitalism are becoming more apparent by the month, with its overcapacity, empty industrial parks, struggling housing market, weak consumer demand and deflationary pressure. It is tragic, then, that so many in Washington seem to believe that the best way for the US to compete with China is to become more like China, with the government playing a large role in shaping the composition of investment, industry and employment. 

It would clearly be better for the US to double down on its former broad bipartisan consensus: neutral support for business investment, basic research, infrastructure and worker training — and a strong commitment to the rule of law and free markets.