The USG's Intel Stakes: Part 2

The problem with Trump's industrial policy is that it's not industrial policy.

Last week I wrote about the U.S. gov’t’s (USG) taking a 10% equity stake in a private company—Intel—arguing that, love it or hate it, there is a well-established role for “industrial policy” as the USG has and will always be in the markets. It’s a matter of degree.

One point I made was that there’s been crickets on the right in terms of conservatives calling out this state socialism, a very different outcome than during the Biden-era legislated actions in this space. So, I was surprised to read in my morning WSJ newsletter that there was “an outpouring of criticism from voices on the right, who accuse the administration of nationalizing industry.”

When I clicked through to the article, however, I got Sen. Sanders with a thumbs up while the critiques came from Sen. Rand Paul, obliquely from Nikki Haley, and “the syndicated radio host Erick Erickson” (??). That’s barely a trickle, not an outpouring.

There are a few reasons for this cricket convention. First, fear of antagonizing the Orange Menace. Second, and far more interesting, is the point that Trump’s going quite a bit further down the continuum of state capitalism than is usually the case with industrial policy, and there’s a lot wrong with his particular approach here.

Here’s economist Larry Summers from the WSJ article:

Summers…said the Intel stake might be reasonable in isolation, but it was part of a troubling pattern of arbitrary economic management that could slow long-term growth. “Where government provides support to private companies that are in trouble, taking a claim on the upside for the benefit of taxpayers may be appropriate,” he said, likening the move to the Obama-era bailouts of domestic auto manufacturers.

But the Trump administration has a history of picking winners and losers, seeking to orchestrate the functioning of the private sector rather than allowing markets to function independently according to rules—an approach that tends to fuel authoritarianism and corruption in places like Latin America, he said. “I don’t think deal-based capitalism, where the government uses leverage it has over companies to extort money or shares, is a healthy economic strategy.”

When engaging in such interventions as the auto bailouts or the Intel stake, policymakers must ask “why are we propping up a company that market forces are pushing against?” In the case of the autos during the financial crisis, they weren’t just “in trouble.” They were facing liquidation. That’s of course not the case with Intel, though their lack of nimbleness and failure to see around corners have placed them well behind the competition.

A fair question, then, is “okay, why was it okay for you in the Biden admin to provide support in terms of grants but it’s not okay for Trump to give the USG ownership stakes?”

It’s a good, tough question, but we were confident that Intel could a) build numerous domestic chip fabs in places that could use the economic activity and b) they would not have done so without our help. That meant making a deal for specific buildouts without taking a long-term stake in the company, as doing so which engenders far more possible distortions, especially with Trump in place. Companies trying to curry his favor might go with Intel chips instead of a better choice. And does anyone really believe that Trump, with a majority stake behind him, will really be a silent partner?

But the real problem goes way beyond Intel. It’s that Trump has zero appreciation for any line between gov’t and private commerce. He’s shaking down media companies—CBS wrote him a check to do their merger; ABC wrote him another check, as did tech companies Facebook and X. Amazon gave his spouse a pumped-up deal for a lame documentary; Nvidia and AMD are giving him a cut of their China biz; Tim Cooke is acting like a Russian oligarch, giving him a weird, gold-plated award for…not sure what. He’s got a “golden share” in US Steel, he’s up in the grills of law firms, universities, sports teams (he wants them to change their names back; if the Washington Commanders don’t do so, he’ll try to block their new stadium deal). He wants Coke to use his recipe!

In other words, the problem with Trump’s industrial policy is Trump. There’s no economic plan to get in and get out (when we bailed out the auto companies, we had a clear escape route), no sectoral strategy—whichever sectoral rep is in the Oval gets the deal, certainly no appreciation of comparative advantage drawn from trading with allies to expand our supply of goods and services, no innovation strategy (to the contrary, by cutting renewable energy sources, Trump’s making computing/AI more expensive here relative to competitors including China), nothing on human capital, both domestically and more so re immigration.

In fact, it’s not industrial policy at all. It shares some passing resemblance in that it’s the gov’t intervening in the private market, but no one, including Sen. Sanders, should be fooled. He’s just leveraging the power of the presidency to bend companies to his will and his whims. And he’s got a bunch of firms worried that they’re next when it comes to USG equity shares.

This, as Larry said, is not a “healthy” strategy for growth or innovation. It would be great to see an actual outpouring of prominent voices against these increasing encroachments but I don’t see any spines stiffening out there. Just a bunch of cowering billionaires who think they’re protecting their riches by kissing the ring and throwing in a gold bar or two.

Good luck with that.