Trump/Lutnick Government Ownership & Control Agenda Stifles U.S. Innovation
By the Curmudgeon with Victor
Sperandeo
Introduction:
The Trump administration's growing influence over corporate
America resembles a sweeping consolidation of government power and control over
the private sector. In recent months, President Trump has unveiled a series of
unconventional initiatives that have extended the government's economic
footprint, leaving many companies uneasy and worried if theyd be next.
U.S. government overreach has involved arbitrarily imposing
or changing deals after the fact or favoring certain companies. This type of
crony capitalism perverts free markets and stifles
innovation. We believe the government's role should be to address genuine
crises and advance national priorities, not to create an unfair system that
benefits companies with political connections.
U.S. Governments 10% Ownership of Intel:
Most notably, the administration used strong arm tactics to
pressure Intel to return its government funding [1.] to enable the U.S. government to acquire a 10% stake in the
company. The U.S. is now Intels
largest shareholder!
Before inviting Intel CEO Lip-Bu Tan into the Oval Office,
Mr. Trump had threatened to have him ousted as chief executive. Meanwhile, Commerce Secretary Howard
Lutnick had halted government grant payments to Intel established under the
Biden administration.
This is not how economic policy is supposed to work in a
wealthy, democratic country. Trumps
approach to Intel reads like something out of Venezuela or Russia, where
political leaders use threats and insults to cow business executives into
submission.
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Note 1. The U.S. governments $8.9 billion investment in Intel (9.9%
of the company) was funded primarily by converting unpaid grants previously
awarded to Intel. This included $5.7 billion from the 2022 CHIPS and Science
Act and $3.2 billion from the "Secure Enclave" program for
Defense Department projects.
The 2022 CHIPS Act was a bipartisan bill aimed at
building up U.S. semiconductor manufacturing.
Yet by using loan shark/extortion tactics, the Trump administration has
deprived Intel that funding to build out its semiconductor manufacturing
plants.
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The governments new part ownership of Intel has raised
concerns among some companies, who fear they may be pressured into doing
business with the chipmaker on unfavorable terms. Even Biden officials who
designed the program have questioned the deals value, warning it may do little
to strengthen Americas chip supply. The original plan called for distributing
grants to Intel gradually as it met U.S. production milestones, but the Trump
administration instead delivered the remaining funds upfront in exchange for an
equity stake.
Heres what we wrote in a previous
Curmudgeon/Sperandeo blog post:
Allowing the U.S.
government to own 10% of Intel is unconstitutionala 100% step toward fascism.
While Victor doubts Trump realizes this idea traces back to Mussolini, it is
shocking how ignorant this U.S. President has been. The long-term consequences are very dangerous
- this corporatism policy would create a monopoly for Intel, since government
contracts would be awarded without competitive bidding. That would eventually
allow Intel to drive competitors out of business, leaving consumers to pay
whatever prices Intel demands. This is yet another step toward the collapse of
free markets.
U.S. Ownership of Other Companies:
Under President Trump, the U.S. government has also taken
ownership positions in U.S. Steel and the rare earths producer MP
Materials. Mr. Lutnick has said the
administration may take stakes in defense firms, while U.S. Treasury Secretary Scott
Bessent has identified shipbuilding as a potential acquisition target.
l Lutnick has suggested that U.S. investments could be made in
defense contractors, such as Lockheed Martin, Boeing and Palantir.
l Bessent has mentioned that acquiring stakes in industries
like shipbuilding is an option the government could consider as
a way to "de-risk" the U.S. economy and ensure
self-sufficiency.
Its not clear how many companies the U.S. government could
ultimately seek to take equity in. Mr. Trump has suggested that the United
States may buy stakes in many more.
Image Credit: Getty
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Confiscation of a % of AI Chip Sales to China:
Mr. Trump forced Nvidia and AMD to agree to pay
the U.S. government 15% of their China AI chip sales revenue to obtain export
licenses, following a previous ban imposed over national security concerns.
This "revenue share" is viewed as a significant shift from
traditional export controls, with the Trump administration justifying it as a
benefit to American taxpayers and China being advised against using the chips
due to potential security risks.
Trumps move to take a share of A.I. chip company sales to
China has drawn very sharp criticism. Such an arrangement would give the U.S.
government a financial stake in products that the Commerce Department is
simultaneously responsible for regulating on national security grounds.
Department lawyers are reviewing the plan, but many officials and outside legal
experts argue it is not legally permissible.
In addition to taking a cut of A.I. chip sales to China,
Trump has used the threat of tariffs to strong-arm Japan and South
Korea into agreeing to put hundreds of billions of dollars into a fund that
will be controlled by the United States. The agreement allows Trump to invest
the money largely at his discretion during his presidency.
Howard Lutnicks Investment Accelerator:
As Commerce Secretary and a key figure in President Trumps
trade negotiations, Mr. Lutnick wields a range of powerful economic tools.
These include the ability to threaten
tariffs on products such as automobiles, semiconductors, and steel; suspend
manufacturing grants; and block export licenses.
In recent months, he has used these powers assertively to
pressure companies and foreign governments for increased investment and other
concessions, according to NY Times interviews with more than a dozen current
and former officials and industry executives. Many requested anonymity,
citing either a lack of authorization to speak publicly or concern about
retaliation from the White House.
Mr. Lutnicks efforts center on a
newly formed initiative within the Commerce Department known as the Investment Accelerator. It was set up
in March through an executive order as a concierge service for companies making
high-dollar investments in the United States. Mr. Lutnick hired Michael Grimes,
a lead tech banker at Morgan Stanley, and David Shapiro, a partner at Wachtell,
Lipton, Rosen & Katz, to lead the new initiative.
Although details remain scarce, even among some department
staff, it appears that Lutnick is making the Accelerator into a fund
capable of attracting foreign capital and negotiating equity stakes in U.S. companies. This investment vehicle could then
channel resources toward advancing President Trumps priorities, such as
expanding Americas industrial base or potentially contributing to efforts to
reduce the national debt.
Lutnicks actions are sparking concern among companies,
government officials, and policy experts, raising questions about whether the
Commerce Department has the legal
authority to invest directly in private-sector firms. Critics also warn
that such moves could distort the economy by allowing the government to pick
winners and losers a sharp break from traditional conservative principles
favoring limited government intervention in markets.
Inside the Commerce department, some employees including
appointees of Mr. Lutnick have expressed unease with the approach. However,
according to current and former officials, many are reluctant to speak out,
fearing potential retaliation or dismissal.
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Other Voices:
The whole thing strikes me as kind of a shakedown, said Greg Mankiw, a Harvard economist who led the
Council of Economic Advisers under President George W. Bush. Its like when
the mob comes to visit: Nice business you have here, I wouldnt want anything
to happen to it, Mr. Mankiw said of the Intel deal and other corporate
efforts to win the administrations favor.
Senator Rand Paul, Republican of Kentucky, has called the
governments stake in Intel a step toward socialism.
This is an area that is potentially, absent good governance
and good theories of the case, rife for mismanagement and favoritism, said
Peter Harrell, a nonresident fellow at the Carnegie Endowment for International
Peace and a former Biden White House official.
Tim Bajarin in Forbes:
If we normalize federal ownership in publicly traded firms, we are telling the
market that private risk and innovation are no longer the ultimate drivers of
progress political interests are. In the long run, that undermines the very
spirit of entrepreneurial capitalism that made American tech dominant in the
first place.
These tariffs are
just a drain on American manufacturers like mine. Theres no benefit. Its an
abrupt tax that is impeding our ability to hire and grow, said Julie Robbins,
chief executive of EarthQuaker Devices, a
manufacturer of guitar pedals in Akron, Ohio.
Thursdays NY
Times Editorial Board: Mr. Trump evidently believes that his haphazard,
self-centered approach to policy makes him look tough and decisive. In reality, it introduces more chaos to our economy,
including to (the semiconductor) industry at the center of 21st-century life.
Authoritarian regimes dont stop with large companies. State
control inevitably reaches start-ups and small businesses, hollowing out the
heart of the economy, wrote Seth Levine and Elizabeth MacBride in Saturdays
NY Times.
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Victors Comments:
Article 1 Section 8 of the U.S. Constitution clearly
states what the federal government can do. Running or investing in businesses,
in any fashion, is not one of them. What President Trump has done and wants to
expand upon is unconstitutional!
Sadly, our U.S. President has no basic understanding of the
Constitution, what it means, and its history. Checks and Balances are at the
heart of our laws.
Imposing tariffs without an economic emergency and partial government
ownership of U.S. businesses are gross unconstitutional acts of despotism
(the exercise of absolute power, especially in a cruel and oppressive
way)! The Supreme Court should
disallow both of them.
Rand Paul correctly called it Socialism, but I
prefer the term Fascism. Socialism is owning the means of production;
Fascism is control without owning the property. In this case, it portrays a
partnership between the government and business, which is really the way
Mussolini sold the concept in Italy with the founding of the Italian Combat
Squads (Fasci Italiani di Combattimento) in 1919.
However, if the business did not do what the government wanted the consequences
were dire.
And yes, Shakedown is a proper description of what
occurred. I would have described it from its root: Extortion.
Lastly, the U.S. economy (via the labor market) is much
weaker than expected, so I believe the Fed will cut its policy rate by 50 bps
and end QT (allowing the Feds balance sheet to decline further) on Wednesday.
If a recession occurs, it could be a threat that the Fed will lose its
power?
Conclusions:
Targeted government intervention that favors specific
companies over others can harm the economy by distorting market competition and
rewarding political connections rather than merit. Programs that apply
transparent, broad rules to an entire industrysuch as those supporting general
research and development or infrastructureare more effective because they
preserve competition and support economic growth across the board. The practice
of "handpicking winners and losers" undermines free markets and
promotes favoritism.
To promote a thriving U.S. economy, America needs a system
that encourages innovation and empowers entrepreneurs. This system should
ensure that the benefits and risks of economic activity are shared equitably. A
healthy market is one where opportunities are open to all who are willing to
take risks, not just those with political connections.
History has shown that systems which move away from free
markets toward state controlsuch as the model seen in Chinacan eventually
lead to economic stagnation. Abandoning the principles of the American economic
model, which is based on free enterprise and competition is risky and extremely
dangerous.
Victors End Note:
The Conclusions (above)
by the Curmudgeon are a PERFECTLY crafted view of what occurs in this kind of
government involvement in the private sector.
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Wishing you good health, success and good luck. Till next
time
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever-changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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