The U.S. government lost about $12 billion on Friday as Intel’s stock fell 29 percent, its worst day since 1974. Last year, the Trump administration took a 10 percent stake in the chipmaker. Even after the sell-off, the trade remains profitable for taxpayers. But the volatility highlights how much it warps the free market for the Commerce Department to take equity positions in dozens of American companies.
Owning such a big share makes the government more inclined to side with Intel in disputes with its competitors and to give the company special favors. The potential conflict came into focus last week when the Federal Communications Commission granted Intel — and only Intel — a one-year exemption from its ban on certain foreign-made advanced robotics.
Intel warned that the rule could prevent its use of automated guided vehicles to move materials in semiconductor manufacturing plants and said there are no U.S.-made robots to use instead. That’s a great argument for scrapping the FCC’s policy altogether. But the ban remains in place, and the FCC hasn’t announced comparable exemptions for other chipmakers with domestic manufacturing operations.
Such is the danger of state capitalism. The government’s picking winners and losers is a recipe for hamstringing investment. Intel’s hotline to the White House could give the company a leg up over competitors that have outperformed it technologically and commercially. Nevertheless, if investors think political protection bestows advantages on Intel in the marketplace, they will be strongly tempted to back the firm over better-managed alternatives. That leaves consumers worse off.
China’s industrial policy is highly inefficient and not worth mimicking. TSMC and Samsung outpace China’s state-backed Semiconductor Manufacturing International Corp. in market share and innovation, despite Beijing’s investing billions in SMIC to make it a market leader. Other state-backed Chinese companies never produced a single chip. The country’s electric-vehicle industry was once the poster child for state investment success, but domestic auto sales have plummeted, and local governments are stuck keeping failing plants on life support. Thus is economic growth depressed and capital consumed that would have more productive uses elsewhere.
Uncle Sam is also meddling in Intel’s business decisions in ways that aren’t necessarily in the best interests of its other shareholders. In June, for example, President Donald Trump announced a deal between Intel and Apple that reportedly caught Intel’s own executives by surprise. And Intel’s chief executive, Lip-Bu Tan, is reportedly playing “Mother, may I?” by checking with Commerce Secretary Howard Lutnick before making major equity sales.
That coziness causes market distortion, and it’s likely to get worse. The Trump administration has already announced ownership stakes in 40 companies, according to the Cato Institute, and the government recently took stakes in multiple start-ups developing nuclear fusion — a nascent industry particularly vulnerable to the problems caused by government bumbling its way into trying to pick the right company to champion. The move risks steering capital toward companies that excel at winning favor Washington instead of developing commercially viable fusion technology.
Alas, this bad habit will probably continue after Trump leaves office. The Biden administration used government subsidies for building chip factories to push a progressive social agenda and benefit allies in organized labor. Now, Democrats are actively discussing how to expand the federal government’s portfolio in the artificial intelligence industry. It doesn’t matter which party is doing it: Central planning never works.
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