Intel to U.S. Steel: Washington Takes a Seat
at the Table
By the Curmudgeon with Victor
Sperandeo
Overview:
The recent shift toward state capitalism under the Trump administration has
been characterized by an unprecedented interventions
in private sector business activities. Those measures extend the
administration's tariff policy to include:
1.
Ownership stakes in public
companies like Intel, MP Materials, and U.S. Steel/ Nippon Steel (among
others)
2.
Taking a cut of the
proceeds from Nvidia and AMD AI-GPU chip sales to China; and
3.
Direct involvement in
private sector transactions.
International Institute for
Strategic Studies senior fellow Maria
Shagina wrote on Sept. 15. They "reflect the administration's increasingly
transactional approach to corporate America — an approach that challenges the
foundations of the traditionally market-oriented U.S. system." The mainstream media has noticed and has
started to report on this development.
This week’s IBD lead story was
titled, “Trump's
Stock Market Grab: What It Means For Nvidia, Intel And The U.S. Economy.”
Image credit: Investor’s Business Daily
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State capitalism or “Corporatism” is a partnership between
government and corporations where the state is the senior, dominating partner
that controls and directs economic activity to serve the national interest. We
previously wrote that it is unconstitutional, dangerous, and stifles innovation. Please refer to Curmudgeon/Sperandeo posts here and here.
Intervention in Nippon
Steel and the Government’s “Golden Share:”
Following the acquisition of U.S.
Steel by Nippon Steel, the U.S. government obtained a special interest,
referred to as a "golden share," which carries no financial
value or voting rights but grants veto power over specific corporate actions.
This grants President Trump significant oversight of U.S. Steel's newly
acquired operations. In September, this authority was used to block the closure
of an Illinois plant.
The special interest is part of a
larger agreement that includes Nippon Steel's commitment to a $14 billion
investment, with $11 billion allocated for upgrading existing plants and
constructing a new one by 2028. The deal is an unusual move for the U.S. and
signals an expanded role for the government in mitigating national security
concerns associated with foreign investment.
Stephen Heifetz, a partner at the
law firm Wilson Sonsini Goodrich & Rosati, argued in a Council on
Foreign Relations article that the terms of the deal were unnecessarily
restrictive, given Japan's status as a close U.S. ally. Heifetz noted that the
conditions, ostensibly meant to mitigate national security concerns, may prompt
other foreign investors to reconsider involvement in the U.S. market. This
shift, he suggests, could ultimately undermine, rather than enhance, U.S.
security in the long run.
To solidify the U.S. Steel deal
with Nippon Steel, President Trump doubled the tariff on steel imports to 50%,
which was announced at a May 30th rally. The imposition of this
protectionist measure served as the primary incentive for Nippon Steel to
proceed with the “golden share” agreement. Trump's personal credibility was
invested in the deal, backed by a significant increase in trade barriers,
despite the U.S. government not having a direct financial interest in the
company.
While the U.S. government holds no
direct financial stake in either Nippon Steel or its U.S. operations, the
President's public support and the imposition of significant tariffs provided
critical leverage in the negotiations. This policy-driven approach, aimed at
protecting domestic manufacturing, served as a powerful motivator for the
foreign corporation to comply with U.S. demands. Steel tariffs hike costs for automakers and
many other manufacturers. That complicates the Trump economy's goal of boosting
U.S. factory activity.
Victor’s Comments:
The duplication of the Mussolini Business/Government model by
an American President is jaw dropping. No U.S. law permits the federal
government to either create money to own shares in companies or acquire them in
an exchange of funds that were allocated for a completely different purpose
(e.g. Intel and return of the CHIPS act funds) and thereby “effectively”
control U.S corporations.
The lack of insight to where this could lead demonstrates the lowest
intellectual IQ of Congress imaginable. The federal courts, which have
acquiesced to the executive branch by looking the other way as the U.S. takes
positions in companies and exerts control is abominable.
àWe hope our readers can grasp
where this can go? It would be the end of capitalism in the U.S. as we know it.
Stock Market Impact of U.S.
Government Equity Stakes:
MP Materials, which operates the world’s second-largest rare earth mine in Mountain Pass, California, has
surged 146% as of Oct. 7, following a $400 million investment from the
Department of Defense that made it the company’s largest shareholder with a 15%
stake. More on this below in the next sub-head.
Intel shares have risen 67% since Aug. 14, when reports
surfaced that the White House was considering converting CHIPS Act funding into
an equity stake in the company.
Lithium Americas, stock jumped 169% after reports on Sept. 24th
that the Trump administration was considering an ownership stake in its Thacker
Pass project, one of the largest known lithium deposits globally. The
investment was confirmed on Sept. 30th. As a result, Lithium Americas can now defer
repayment on a $2 billion loan approved under the Biden administration. In
exchange, the government received a 5% stake in both the Thacker Pass project
and Lithium Americas itself. While this may slightly reduce project risk,
analysts note it has limited impact on project economics and comes at a significant
cost to existing shareholders.
Canada’s Trilogy Metals stock
tripled on Tuesday after the White House announced a $35.6 million investment
for a 10% equity stake, along with warrants for an additional 7.5%. The funding
will support the development of a copper mine in northwest Alaska, with the
Trump administration also approving a road to provide access to the site.
These equity investments by the
U.S. government have sparked rallies by other small mining stocks, despite
skepticism from analysts about dubious long-term benefits.
Source; Investor’s Business Daily
The MP Materials Deal:
The Trump administration’s equity
investment in MP Materials is part of a broader, multibillion-dollar strategic
initiative. As part of the package, the Pentagon committed to purchasing
neodymium-praseodymium oxide (NdPr) from MP over the
next decade at a floor price of $110 per kilogram. NdPr
is essential for manufacturing permanent magnets used in electric vehicles,
wind turbines, and robotics. With prices previously halved due to market
oversupply from China, the deal aims to stabilize domestic production and
bolster the competitiveness of U.S. rare earth miners.
USA Rare Earth recently confirmed White House talks for a U.S.
stake, sending USAR shares soaring as per this chart:
USA Rare Earth is set to open its
Stillwater magnet production facility in Oklahoma in Q1 2026, aiming to produce
17% of U.S. rare earth magnet demand amid strategic efforts to reduce China
dependency. The company faces $142.7M Q2 2025 losses and a "going
concern" warning, despite $128.1M cash reserves, raising questions about
financial sustainability ahead of 2026 production.
Bragging About Intel Stake
Spurred Other Investments:
"I PAID ZERO FOR INTEL, IT IS
WORTH APPROXIMATELY 11 BILLION DOLLARS," Trump posted on Truth Social on
Aug. 25. "I will make deals like that for our Country all day long."
He added: "I will also help those companies that make such lucrative deals
with the United States. I love seeing their stock price
go up, making the USA RICHER, AND RICHER."
Amid reports that the White House
and Intel were close to reaching a deal, Japan’s SoftBank announced on
Aug. 18 that it had purchased a $2 billion stake in Intel. One month later,
Nvidia followed with a $5 billion investment for a 4% stake.
Intel shares surged 23% after
Nvidia also revealed plans to become a major customer for Intel’s x86 central
processing units, which will power Nvidia’s custom chips for its AI data center
platform. Despite the rally, Citi downgraded Intel to a sell
rating the next day, arguing that the deal failed to address fundamental
concerns about the company’s foundry operations.
Dan Kim, who served as chief economist for the CHIPS
program office under President Biden, told Stratechery's
Ben Thompson in a Sept. 11 interview that Intel's lack of orders is
probably only resolvable with a U.S. government "mandate to source a
certain amount" from Intel, giving fabless semiconductor companies
"skin in the game to make Intel Foundry successful."
Such a forceful intervention would
go beyond the approach of past administrations "about what a government
should do," Kim said. "But we are now at a place where this
particular administration's President doesn't really hold a lot of importance
to previous norms and so is willing to break them for an outcome." In Kim’s view, the potential benefit
justifies the move — not the financial gain from a rising Intel stock price,
but the broader value of preserving Intel’s semiconductor fabrication research
and development capabilities which have been declining for years.
Curmudgeon’s Conclusion:
Trump’s recent corporate
interventions “have so far been structured to secure public gains,” wrote
Joel Dodge, director of industrial policy and economic security at the
Vanderbilt Policy Accelerator, in The Washington Monthly.
However, without congressional
action to establish clear rules for “golden shares” and revenue-sharing deals
like the one with Nvidia — and there’s no sign it will — lawmakers would
effectively endorse “Trump’s mode of industrial policy by one-man deal making.”
Such an approach, Dodge warned, risks “cronyism, corruption, and favoritism
for well-connected dominant firms.”
So far, investing alongside Trump
has paid off big time for companies such as MP Materials and Intel, which have
benefited from his willingness to use government power to reshape industries.
Yet the administration’s turn toward state capitalism is still in its early
stages, raising concerns about its long-term consequences.
“Acting as both regulator and shareholder generates conflicts of interest
on an epic scale,” wrote Veronique de Rugy, a senior fellow at George Mason
University’s Mercatus Center, in a Los Angeles Times op-ed.
If the regulatory state becomes a
tool for extracting concessions, favored firms may prosper — but competition,
innovation, and ultimately the broader market would likely suffer.
Victor’s End Note- Implication of the Broken Window
Fallacy:
In the brilliant book, “Economics in One Lesson” by Henry
Hazlitt points out the “broken window effect” in economics. To illustrate
this point he introduced the concept of “seen
and not seen.” The "seen" part of the story is the most obvious and
immediate effect of an action. The "not seen" aspect is the less
obvious, but equally important chain of events that reveal the true economic
cost of the action.
As an example, consider the “broken window fallacy,” which was first
introduced by the 19th-century French economist Frédéric Bastiat. Here’s the
“seen” sequence of events:
·
A baker's window is broken,
requiring him to spend money to fix it.
·
A glazier (window maker)
gets paid for the repair and then spends that money elsewhere in the economy,
such as on a new suit.
·
The transaction
"creates jobs" and stimulates economic activity, causing onlookers to
think the broken window was actually a good deed?
And what was not seen is the
following scenario:
·
The baker's loss: The baker
is now out the money he spent on the window. He was planning to buy a new suit
with that money, but now he can't.
·
The tailor's loss: A tailor
loses the business of selling a new suit to the baker. The tailor's potential
economic activity is erased.
·
The community's loss: The
community is now one window and one suit poorer than it would have been if the vandalism had never occurred. The baker only has a
window, whereas he could have had both a window and a new suit.
In summary, what is not seen is
the loss of savings or increased budget expense that
cannot be used for a productive investment elsewhere. When something is
destroyed for a job, it is never “for good;” it is actually a
loss!
The principle is the same, but far
more harmful in this case. Capitalism can easily be destroyed if laws are
ignored such that the U.S. government can have a stake, influence and impact on
U.S. companies and eventually control them. Trump is setting the precedent by
buying shares in public companies.
This is a fault line that the U.S.
government is building which is setting up for a future earthquake.
-->It takes an
intellectual idiot to not see the danger in this unconstitutional action. It is
clearly Fascism 101 which will lead to Socialism.
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End Quote:
Please try to understand and
ponder the concepts of another great economic thinker Ludwig Von Mises
(an Austrian political economist and philosopher of the Austrian school) who
wrote:
“A man who chooses between
drinking a glass of milk and a glass of a solution of potassium
cyanide does not choose between
two beverages; he chooses between life and death. A society that chooses
between capitalism and socialism does not choose between two systems of social
organization; it chooses between social cooperation and the disintegration of society.”
-->What has the U.S.
become when the principles of liberty are so nonchalantly discarded?
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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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