October 16, 2025 • 46 mins
It's nothing new for the US government to use public money to support private American companies. The Biden administration, via CHIPS and the Inflation Reduction Act, was aggressive about using loans and grants to accelerate US industry. But the Trump administration has been engaged in something more novel: taking direct stakes in US companies like Intel and MP. But what is the legal basis for such action? And what are the advantages and disadvantages of direct equity stakes? On this episode, we speak with Peter Harrell, visiting scholar at the Georgetown Institute of International Economic Law. We discuss the structure of these new arrangements, and the advantages and disadvantages for the government to be a minority shareholder in publicly-traded companies.
Read more:
Intel Debuts New Technology in Make-or-Break Moment for CEO’s Turnaround Bid
US Rare Earths Stocks Jump on Bets Government Will Keep Buying
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
another episode of The Odd Laws podcast. I'm Joe Wisenthal and.
Speaker 2 (00:23):
I'm Tracy Alloway.
Speaker 1 (00:24):
Tracy, isn't it you who's said for a long time
that whenever the government does some of these deals, like
with Chips or maybe the early backing of Tesla, et cetera,
aren't you always like, why didn't the government get equity
stakes in these companies? Why are we just getting back
sort of loans that are more or less the same
amount of money we put in?
Speaker 3 (00:41):
Yeah?
Speaker 2 (00:42):
I think I have said that. Yeah, I mean it
seems like this weird sort of half ground where you
are investing in a company without asking anything in return.
Speaker 1 (00:51):
Yeah, to be fair, they do have milestones and provisions
and so forth. But yes, it does feel like some
of these funding structures have been i would say, at
least incomplete, to say the least, and the effectiveness has
been inconsistent. All that being said, the Trump administration, apparently
big fan of yours, listening to you over the years
(01:11):
on the podcast, with some recent deals, is sort of
getting into the equity business in some way.
Speaker 2 (01:17):
Yeah. So I've seen people describing this as more activist
industrial policy or state interventionist industrial policy. One thing I
will say, for a president who seems to like calling
other people communists quite a lot, he sure does enjoy
owning the means of production.
Speaker 1 (01:34):
Yeah, there's certainly some scrambling, right.
Speaker 2 (01:36):
Well, this is the other thing. The ideological scrambling has
been interesting to watch because you had people like Bernie
Sanders who were saying, well, the Intel deal is a
great return for the American people, And then you had
I can't remember the name, but you had a Republican
going like, oh, this is the end of capitalism. So
it's kind of funny to watch.
Speaker 1 (01:54):
It's super interesting, super confusing time. I'm not personally as
bothered by the lack of quote, taxpayer return on this stuff,
mostly because I view the goal or failure is is
there going to be a public benefit? Are we going
to have security because we could produce chips? Are we
going to have security because we financed domestically mining of
rare earth minerals and so forth? But these are like
(02:15):
the big questions, and I think we should learn more
about this sort of new approach and what's a continuation
of what we saw under Biden? What's different et cetera.
Whether any of this will work. Of course, by the way,
you know, we're talking about an Intel, so Intel specifically,
the government has taken some sort of warrant or something
I'm not totally sure on.
Speaker 2 (02:33):
They took shares I think almost a ten percent stick.
Speaker 1 (02:35):
Yeah, and also MP, which is of course the great
hope for whether the US could also mine rare earth
metals such as China. So pretty big deals and I
think we should talk about them.
Speaker 2 (02:46):
Can I just say? If you look at the HDS
function on Bloomberg, you can see that the United States
government is now listed as a top shareholder and if
you click into it, it says US Department of Commerce.
I don't know why. I just find that so crazing.
Speaker 1 (03:00):
I had not looked at that.
Speaker 2 (03:01):
Yeah, it's kind of funny, And I don't know. I
just have this vision of like Howard Lutnik, like checking
on his portfolio.
Speaker 1 (03:07):
Of it, we're going to get well, you know, we're
gonna get an eatif actually on ironically, our old friend
Lukawa and sure what, he had a really good post
yesterday pointing out the fact that it's very important the
shares of Intel and MP and one other one have
done very well. So a lot of people are sort
of making this trade of why would you not be
in the same trade as the US government If the
(03:29):
government does long Intel in some respects and the MP,
and given they're going to want to support their investment
and see a return, why would you as a shareholder
not want to sort of get ahead of that trainer
be on the same side.
Speaker 2 (03:39):
Oh wow, I'm looking at the Intel charge right now.
It's gone up a lot.
Speaker 1 (03:42):
It's gone up a lot. So this is a meaty
subject that we have to talk about further. So I'm
very excited to say we have the perfect guest, someone
who's been talking about this, someone who even recently contributed
something to the Odd Loot's newsletter specifically about the MP deal.
We are going to be speaking with Peter Harrow. He's
a non resident fellow at the Carnegie Endowment for International Peace.
He was also serving in the Biden White House, a
(04:04):
National Security Council, Economic Council, and he's gonna talk us
through these deals. So, Peter, thank you so much for
coming on odd Lots.
Speaker 3 (04:12):
That's great to be on. Thanks for having me.
Speaker 1 (04:14):
Why don't you just sort of give us a very
brief background or your background or your work and why
you're particularly interested in these deals the arrangement.
Speaker 3 (04:23):
So I served at the Biden White House for the
first two years or so of the administration doing industrial policy,
and you know, it's interesting I'd actually gotten into the
industrial policy file for the White House because back during
the campaign in twenty twenty I was advising the Biden
campaign and Brian Diese, who was with the campaign then
(04:45):
later became the National Economic Council Director, came to me
and was like, you know, it's COVID times. We have
all these supply chain issues. You know, their podcasts talk
about the supply issues. Maybe we should do something about this.
And so I actually on the campaign had put to
together what was a campaign pledge that then candidate Biden
(05:05):
rolled out in mid twenty twenty on how you could
strengthen American supply chains and the downside of doing that
is then you get to you win the life. President
wins the election and Brian East calls you back up
and says, hey, you remember that thing you did last summer,
how would you like to come in and start getting
industrial policy along with a whole huge team of other
people going in this country again.
Speaker 2 (05:25):
So just to sort of set the scene before we
talk about why these deals are unusual in some respects,
can you talk about how government support of industry has
happened in the past, because I'm thinking about something like
the Chips Act. I don't remember equity stakes ever being
mentioned in that. What was the quid pro quo in
these sorts of previous government deals.
Speaker 3 (05:47):
Yeah, and Tracey, I appreciated the comment you made in
your opening about, you know how you've talked previous about
maybe there should be some government upside in when the
government is investing money in some technology or some development
of some industrial capacity. That is very, very unusual in
American history if you look at the history in the
United States of government ownership of private sector companies and
(06:11):
has almost always only been in the context of bailouts.
You know. So in the nineteen thirties, a bunch of
banks are failing some of the New Deal programs. In particular,
something called the Reconstruction Finance Corporation takes stakes in at
least forty percent or so of America's banks again in
nineteen thirties, but that's really fundamentally a bailout program for
(06:33):
the banks because the banks are going under similarly famous
examples in more recent history in nineteen seventy nine, nineteen eighty,
Chrysler's going bankrupt. It's part of a bailout of Chrysler.
The government takes warrants in Chrysler. Then during two thousand
and eight and the financial crisis, as part of the
bailouts of AIG and some of the other financial companies,
(06:54):
as well as some of the bailouts of automakers back then,
government takes equity, but historically we've only done it during
kind of bailouts, and the government when it has taken
these equity stakes as part of bailouts, has always made
clear our goal was to own this for as short
a time as possible.
Speaker 2 (07:10):
Yeah, because I think I remember from the two thousand
and eight auto bailouts, those were warrants, right, The goal
was always to like eventually get out of that position exactly.
Speaker 3 (07:20):
It was very clear, you know, you go back, you
read both the Treasury Department guidance at the time, you
read the press at the time, you read the statute,
and it was kind of we're going to take this
as a security interest for the bailout, you know, for
as short a time as possible, and the Treasury Department
exited most of those positions within a couple of years,
certainly as soon as commercially feasible. And I think what
(07:42):
the Trump administration is doing now is really quite different,
where they seem to be seeing themselves seeing the US
government as a long term investor in a set of sectors,
in a set of companies where they think having that
government capital as a long term investor will help a
strengthen the company and the sector and be potentially give
(08:04):
some upside to the US government.
Speaker 1 (08:06):
So what do you with Intel and p What do
you give the sort of broad as you understand them,
the broad stroke structure of these arrangements. What is the
nature of these investments, What are the obligations of the
companies and so forth? Give us the sort of outline
of them.
Speaker 3 (08:21):
Yeah, and Joe, to pick up on a point you
had made during your introduction, It's not that the idea
of government support for chip manufacturing in the US or
for rare earths in the US is new. I mean,
there was a chips program under the Biden administration. There have,
going back for more than a decade now, been programs
to try to get US rare earths processing. Historically, those
(08:45):
things have been done through grants and loans, not equity,
you know. So there is a grant to Intel to
pay basically fifteen percent. This is prior to the Trump administration.
There's a grantee Intel to pay basically fifteen percent one
five percent of the cost that Intel was going to
incur to build four sets of fabs here in the
United States. There were grants again prior to the Trump
(09:07):
administration to MP Materials to help subsidize MP Materials building
a rare earth's mine and processing facility. So we've historically
done this through grants and loans, and as you say,
the idea was the public return was what we have
chip manufacturing in the US or we have rare earth's
processing in the US. What the Trump administration has done
(09:30):
is converted what were grant and loan programs into programs
whereas part of the grant or loan, the government is
taking an equity stake. In the Intel case, it is
taking a nine point nine percent equity stake in exchange
for transferring the unallocated, the unspent part of that previous
(09:53):
Intel grant to Intel. So they instead of doing it
out over years as Intel built the fab They have
now transferred just under six billion dollars in cash to
Intel and gotten equity in return. And they've also actually
relieved Intel of some of its legal obligations to build
the fabs, so sort of converting this grant into an
equity purchase. Similar with MP. That the MP deal is
(10:16):
extremely complicated. You know, I wrote a four thousand word
piece for you along with my colleague Garnob Dutta on this,
But basically, DoD has contracted with MP Materials. The Department
of Defense, or maybe we call it Department of Warnow
has contracted with MP Materials to scale up a mine
(10:36):
in California to mine for rare earth, and then to
scale up in both California and Texas a processing facility
to turn those rare earths into magnets which are used
in all kinds of industrial applications. And as part of
this very large contract to pay MP Materials to scale
up the mining and processing operations, the government MP has
(10:57):
given the government to fifteen percent stake in MP Defense
departments now the largest shareholder there.
Speaker 2 (11:04):
Just on the Intel deal, you mentioned that the grants
and loans that were previously given under the Chips Act.
Those came with milestones that Intel had to meet right
in terms of building fabs and actually expanding manufacturing of
semiconductors in the US. But under this new deal, those
are now delinked from the equity stake. I guess do
(11:26):
we have any sense of what the Trump Administration's actual
goals are in this deal, because I could understand, you know,
if they give a company money and they say you
have to do the following things to expand production, that
would make sense. But if they say have some money
and make sure you give us a shareholder return, that
seems a little bit different.
Speaker 3 (11:46):
It is a different deal. As you say, Tracy, the
original deal between the Commerce Department and Intel was planning
to dole out about eight billion dollars over a number
of years with the payments to Intel at that time
grant payments made to Intel as Intel met certain greed
(12:07):
milestones for how they were building out four sets of
fabs Ohio, Arizona, New Mexico, and Oregon. According to the
SEC filings that Intel has made, Intel is now, as
we discussed, relieved of those milestone obligations. Now, I think
the Trump Administration's view is that well, by injecting capital
(12:30):
into Intel, by taking an equity stake in Intel, we
the US government are sending a very strong signal of
support to Intel. Both gives them some capital upfront, but
it also gives them this very strong signal of support
that will help Intel go around and get customers, get
other investors to come in. They are now They also
(12:52):
now have Nvidia coming in as an investor, so there's
a little bit of a record already to suggest that
might be happening. But it's kind of rather than and
here are things we want you to do, we will
pay you for milestones. It is more of an approach
if we are going to bet on you as a
company and hope that our bet on you helps you
succeed over time. As you said, they're actually up. The
government's stake is up I think sixty percent, So it's
(13:15):
cash wise turned out okay for them so far. Yeah.
Speaker 1 (13:17):
I was gonna say it's been a good trade. And
maybe some of the reason that the stock has rallied.
Maybe it's just the sort of pure logic as you expressed,
or it could just be sort of like it could
be sort of memestock traders people are excited about here's
a thing that's going on. We're just want to be
in on the trade. From your perspective, though, do you
(13:38):
see something about the structure of this deal such that, frankly,
that there's reason to be more hopeful about Intel's future
in this arrangement, just on a fundamental basis.
Speaker 3 (13:51):
So I think of this as a very high risk
bet in the following ways. If you go and talk
to pretty much anyone in the semiconductor industry, and if
you've talked to them, and you guys have talked to
them over the last couple of years, you hear a
lot of concern about Intel's health. You know, Intel made
(14:12):
a couple of huge strategic missteps. They decided in two
thousand and seven that they did not want to produce
chips for the iPhone, you know, huge strategic misstep. They
decided in the mid twenty tens, but they were not
going to bet on something called EUV lithography, which is
advanced lithography that TSMC uses to make what are today
(14:34):
hands down the world's most advanced chips. And over the
last couple of years, Intel has been playing a huge
catch up game, and there've been very deep doubts across
the industry about whether Intel can actually do this catch
up game. I think the government's theory here is, well,
if we show support for Intel, we can encourage you know,
(14:58):
other investors to come in. We can encourage the potential
customers of Intel chips to come in, you know, Apple
and Nvidia. We can encourage customers to come in, and
we can really bet on this company and help get
them not just the capital but also the customers and
other things they need to turn it around. That's the bet.
Speaker 1 (15:33):
Something you pointed out in your piece for us on
MP and other people have talked about this as well.
But that deal provides like an order book, the government
is going to buy more. And we've talked about this
with other guests that it's not just enough in some
of these cases to subsidize supply or make it easier
to build, but it also helps to have that guaranteed
buyer for several years out et cetera, and so that
(15:55):
when something is produced there is knowledge of an end customer.
Is there any such provision relation in the Intel deal
in terms of if they build X, that there will
be a buyer for X.
Speaker 3 (16:06):
No, so in the Intel deal there's no kind of
guaranteed end customer government support for the end customer. With
one exception, I mean, going back to the Biden administration days,
there's there's been a little piece of this deal that
is actually not with the commerce departments, with the Defense
Department to build highly secure chips for the Pentagon. Like there,
(16:28):
there is obviously a guaranteed customer, but that's a small
piece of this deal.
Speaker 2 (16:31):
Could you argue that Intel's main problem isn't necessarily cash
in the first place. I think it has something like
ten billion in cash on its balance sheet, which is
probably a drop in the ocean if you're building fabs.
But on the other hand, you know, there is a
lot of capital crowding into the semiconductor space, and it seems,
given some of the missteps that the company has made previously,
(16:53):
maybe the issue is more management than actual balance sheet health.
Speaker 3 (16:59):
Yeah, so when I look Intel, I think it's biggest
problems aren't really access to capital, as you said. I mean,
even prior to the government investment, it's one hundred billion
dollar market cap company. It could raise money in the
debt markets. The biggest problems were can it do the
engineering to build advanced chips, Like, that's problem number one.
Speaker 2 (17:18):
Got to actually do the thing it says it's going
to do exactly.
Speaker 3 (17:22):
And related to that, are there going to be customers
to buy Intel's chips? And those two things are obviously
totally linked because if it can't do the engineering, there
won't be customers, and if it can't do the engineering,
there probably will be customers. I mean, I think the
big risk with the Intel deal is that we definitely
have an instance here of the government picking a winner. Right,
(17:45):
they are petty placing a huge bet on Intel and
not on TSMC and not on you know, startup semiconductor
companies that might actually be more innovative in this space,
and that is something you know, the government is not
historically done. You know, historically we've kind of said we
want to let companies go out and compete in the marketplace,
and we're not going to put a very heavy thumb
(18:07):
on the scale in favor of one particular kind of
you know, champion company here. And we are very much
seeing the government, even though it's not a formal contract here,
Clearly the impetus now is for the government to be
putting a thumb on the scale here for Intel and
I hope that helps them get customers and engineers in
the Like.
Speaker 2 (18:25):
What legal authority does the Trump administration actually have to
do this? So we spoke about the Chips Act. Pretty
sure the Chips Act doesn't say anything about taking equity
stakes in return for grants and loans. Could it be
something like the Defense Production Act or some other act
that I am unaware of that might be in the making.
Speaker 3 (18:45):
Well, you know, we talked about how there isn't a
lot of history for the US government taking equity stakes,
and there's not really any law out there that authorizes
the government to take equity stakes in private companies with
a handful of accept and the Chips Act is not
one of them. I think the Trump administration's legal theory
here basically boils down to two things. You know, First is, well,
(19:10):
the Chips Act may not say we can take an
equity steak, but it doesn't forbid us from taking an
equity steak, so why not? And then thing two on
their legal theory is who's going to sue us anyway?
I mean, Intel's not going to sue us, right, They
just agreed to this deal, and it's it's not clear
that anyone else really has legal standing to go into
(19:30):
court to sue over this. So, you know, like much
of the Trump administration, I think we are seeing a
lot of novel interpretive approaches to the law, but it
really does boil down to I think at its core,
there's no they have a very flexible authority. Legally speaking,
they have a very flexible grant authority. It was clearly
intended as a grant authority, not an equity authority. But
if you read the details of the grant authority, it
(19:52):
doesn't say you cannot take equity as a part of this.
It just says you can give grants, and they've interpreted
that as a allowing them to take equity as part
of the grant.
Speaker 1 (20:02):
I want to go back to the question about whether
the engineering capacity actually exists for Intel to become a
top flight producer of semiconductors.
Speaker 3 (20:13):
Again.
Speaker 1 (20:13):
You know, you mentioned the quote strategic missteps, whether it
was choosing not to build the chips for the iPhone
or to get into advanced UV lithography. But again, they
could have chosen to do those things and not execute
on them, like they could have made different strategic choices
and just not done them as well as TSMC. And
(20:34):
this also gets back to the MP deal because Okay,
like there is this big mine out in California that's
very rich in rare earths and so forth, But a
lot of the question is not whether you could dig
it out of the ground, but whether you can refine
these metals at a cost competitive price, especially compared to
the Chinese, who have invested a ton of this and
are clearly far and away the leader and the most
(20:55):
advanced infrastructure, et cetera. They're like, I'm curious with that deal.
Like with MP, do you perceive them as having the
same questions hanging over them about whether, Okay, they get
this money and they have this mind, can they create
these magnets at a market competitive price.
Speaker 3 (21:14):
Well, I think that the MP materials deal sort of
ensures that they are not going to create these magnets
at a market competitive price. But at some level that
doesn't matter because the government has agreed both to purchase
all of the off take of the magnet. So part
of this steal, the government is buying one hundred percent
of the magnets. Now, it could resell some of these
magnets to private parties, but it's a guaranteed purchaser of
(21:36):
all of them, and on top of being the guaranteed
purchaser of the magnets, it has also guaranteed profit margin
for MP. So I actually kind of get why private
investors are crowding into MP because it's sort of a
no loose business proposition at this point. But I do
think the reality to your point, Joe, is that China
is the low cost producer of rare earth magnets. It
(21:59):
just is. It has this scale and has multiple companies
that do it, and the best it has, the engineering,
it has no you know, low environmental regula. It is
the low cost producer. If we, as the United States,
do not want to be dependent on China for rare
earth magnets, we are going to have, at least in
the you know, near and mid term, to pay more
(22:19):
for those magnets. And so that subsidy is either going
to have to be a direct subsidy from the US
government like the MP materials deal, or it's going to
have to be an indirect subsidy like tariffs or something
else that forces US manufacturers to you know, pay US
producers because the foreign they're protected from foreign competition. And
that's just the reality of this market, and then you
(22:40):
get into this whole debate of you know, are the
national security needs? Are the economic security needs so great
that it is worth paying what will be a subsidy
to have that production here in the US.
Speaker 2 (22:51):
Well, talk to us about the corporate governance angle in
all of this. So with Intel, the US government is
getting a nine point nine percent stake. They also I
think have a golden share like they do in the
Knepond deal. Again, that's something that we tend to associate
with China's state interventionist style, and we should talk about
that a little bit later. But is Howard Lutnik going
(23:13):
to be showing up to Intel agms and participating in
the votes?
Speaker 3 (23:18):
This is another thing that worries me Tracy about the
government taking equity in companies without kind of a clear
statutory basis for it, because there isn't really any federal
set of regulations or laws about how the government should
manage its investments and what its role in corporate governance
(23:41):
should be. So we're sort of seeing ad hoc approaches
as the government does these deals. In the Intel case,
if you read the SEC filings, the government has basically
agreed to vote the shares the way the board recommends
the shares be voted, except in a couple of major
types of transactions, can overall change control, you know, change
(24:01):
in ownership of control transaction. So that's a great deal
for the board because actually now the board of the
Intel knows it has ten percent or nine point nine
percent of the shares to do whatever it wants. A
great deal for the board. But that's unique to the
Intel deal, and it will be interesting to see as
these play out, do we see more and more kind
of direct government, you know, involvement in the management of
(24:25):
the companies.
Speaker 1 (24:27):
It's interesting. One of the things that I think about sometimes.
So the corporate income tax rate in the United States
is twenty one percent. Now, if I own twenty one
percent of a private company, right, I'm in theory entitled
to twenty one percent of their income. It's kind of
one way to think about it. In a sense, the
US government already owns about a fifth of every private
(24:47):
company in America, right, because you have your profits, and
then seventy nine percent goes to the normal shareholders, then
twenty one percent goes to the government. There is a
sense in which the government already owns a fifth of
every company for taxation. The difference is, however, exactly what
you just identified, which is this is a very passive
equity stake that the government sort of has in every company.
(25:10):
So what's really changing is this potential not that the
government is going to collect income from the profits, but
this potential for new ways for sort of activist involvement
in the private sector beyond the sort of traditional regulatory
or legal environment that exists.
Speaker 3 (25:28):
Yeah, and it is both that this is going to
give potentially the government a way of meddling much more
specifically and with much more detail individual companies, and it
also is much more of the government potentially picking winners
within an industry. I mean, let's take the MP. You know,
MP is one of it's not the only company in
the US that is trying to get rares mining and
(25:51):
manufacturing going. Again, there are a number of other companies
that are doing this with mining operations elsewhere in the US.
And there are also some companies that are in the
technology space that are saying, you know what, we might
be able to create magnets that do what rare earth
magnets do, but without using any rare earths. You know,
we're developing new materials and the government here rather than
(26:13):
sort of saying, you know what, we have a program.
We're giving a tax incentive to anybody who qualifies to
kind of let all of these ideas flourish, the government
is saying, you know what, we're guaranteeing that MP's going
to make the money here without actually knowing is MP
like the most cost efficient, the best technological bet. It
is very much a picking winners and losers rather than
(26:35):
seeing what flourishes in the market approach.
Speaker 2 (26:38):
Do we have any sense of how foreign governments and
foreign businesses are reacting to this? So I'm aware that
Intel put out a statement that basically warned that having
the US government as a major shareholder could be problematic
for the company. It could lead to maybe additional regulations
or obligations or restrictions abroad. Have you picked up any
(27:00):
I guess scuttle butt on how scuttle butt too weird
a word?
Speaker 1 (27:04):
No, it's great, it's a great word.
Speaker 2 (27:06):
All right, all right, any scuttle butt on how foreign
entities are reacting.
Speaker 3 (27:12):
So I do think foreign governments are worried about what
it means that the US government is investing in specific companies,
and they're worried about it in two ways. One of
which is, just like the classic governments, worry about what
other government subsidies are going to do. You know, if
there's more subsidies for Intel, how is that going to
(27:32):
affect European manufacturing? Also, we Intel in particular had been
planning to build fabs in Europe. Actually, prior to the
US government buy in, had canceled those fabs in Europe.
But there's worry like would Intel still be a reliable
partner if it is investing overseas or is it just
going to invest in the US now that it's US
government owned. And then the other one is I do
(27:54):
think that for companies, particularly technology companies, you know, we
are in this era of geopolitics where we worry a
lot of about Chinese companies, or Chinese companies worry about
the security issue issues around American companies. I think European
companies are increasingly getting worried about, you know, is American
tech safe to be used? And the closer the US
government gets to a company, I think the more you're
(28:17):
going to see foreign governments wonder about those security risks.
I mean, I just look at what Microsoft had to
do a couple of months ago where they actually said,
in response to European privacy concerns about Microsoft products in Europe,
that Microsoft would be prepared to sue the US government
if the US government started putting unfair privacy requests on
(28:40):
Microsoft about European customers. I don't think anyone would believe
that Intel's going to sue the US government at this
point to protect the privacy rights of its customers.
Speaker 1 (29:05):
So you mentioned the issue of picking winners, which of
course is an issue that precedes any equity stake. Every
industrial policy in the world always has to think about
this risk or possibility, and traditionally the way it sometimes
quote works in the context of sort of developing economies
is they might have that sort of export test. And
(29:27):
we've talked about that a bunch on the show. Our
customers in foreign markets buying your thing, and if so,
that's a sign that you're building something competitive and we're
going to keep backing you. And if not, this is
a sign that you're not working out. And so there's
this mechanism. If we're concerned about the idea that the
government is picking winners with Mper, picking winners with Intel
(29:47):
let's say again with MP, should the direction be that
not that we get rid of the equity components, but
that we just sort of build out the program so
that any entity at any stage could theoretically make the
US government a partner, and that partnership is contingent on
its success in some market measure.
Speaker 3 (30:06):
Well, I guess I look at that as Joe, you know,
you talked about taxes earlier. Isn't that what a tax
credits for? I mean, if you look at the Chips Act,
the original Chips Act, we all focused on the grant
part of the Chips Act, and this is the grant
part of the Chips Act that we're talking about now.
But actually, I think the more important part of the
Chips Act is there was a twenty five percent investment
tax credit that lets anybody building a fab in the
(30:29):
US take twenty five percent of the cost of that
fab as a fully refundable tax credit. So I mean,
it's just a very great deal. I guess. I actually,
as a general, bias would prefer relatively more neutral approaches
that let companies thrive and succeed in the marketplace. And
where you do have grant programs, and there will always
(30:50):
be a place for grant programs. I think you want
to do it in a fairly broad based way and
seed multiple differents. I mean, I've been talking just recently
with Jiggershaw previous guests when your podcast of his time
at at LPO, and he, you know, he had this approach.
He's like, I wanted to say yes to everybody, you know,
(31:11):
anybody who could fit the criteria of getting a loan.
I wanted to say yes to because we want to
place a bunch of different nets, on a bunch of
different technologies, on a bunch of different investments. And you know,
I think there's a lot to be said for that,
which is also historically how we have come now. Maybe
there are rare cases if there's a market failure, there's
(31:32):
some sort of market where there's going to be a
natural monopoly. Maybe in those cases it does make sense.
You know, there's natural monopoly or some kind of market
failure and you're only going to have one or two
potentially successful companies, maybe you do want the government to
take a stake there, because if it's kind of guaranteeing
the market and some upside for the taxpayer makes sense.
(31:53):
But I generally think that should be a pretty rare
instance in our in our capitalist system.
Speaker 2 (31:59):
So there is irony here that an administration which has
been very critical of China and you know, criticize them
for manipulating their market or cheating on global trade rules,
or doing illegal subsidies and all of that kind of stuff,
is now pursuing a more interventionist approach that does seem
very reminiscent of what happens in China. Can you compare
(32:22):
and contrast those two systems and maybe talk about how
US policymakers are thinking about Chinese industrial policy at the moment.
Speaker 3 (32:31):
I mean, there is kind of an element here, right,
we're looking a little bit like state capitalism with American characteristics.
I think we should be you know, open and direct
about that. There are actually some differences. I mean, if
you look at the Chinese industrial policy kind of approach,
there are both similarities and differences. I think one big
difference is actually when it comes to equity stakes in China,
(32:54):
a lot of the equity is actually done at the
provincial government level. You know, it's sort of an see
that's owned by a particular province, relatively less at the
central government level. In China, the central government does tend
to do a bunch of you know, grants and R
and D programs and that kind of thing, but they
have a very heavy provincial level element to these. The
other thing that I think China does, frankly pretty well
(33:15):
kind of to where we just were talking Tracy and
Joe is China does tend to bet on multiple companies.
If you look at why they have a very successful
EV sector right now, it is in part because you
had lots of provinces investing in lots of companies, plus
a tremendous amount of central government support on the demand
side as well as on the supply side of the equation.
(33:37):
So you have dozens of EV companies there out in
the marketplace battling every week to build better technology and
to sell it to customers. So they've kind of created
this state capitalism, but state capitalism that is actually in
some of these sectors quite competitive in a way that
spurs innovation. And I think if we're going to do
more of that, we need to make sure we are
(33:59):
also focused on how do we keep this competitive just
spur innovation and don't just kind of, you know, back
a bunch of flabby nineteen seventies European style national champions,
which you know didn't turn out too well in the past.
Speaker 2 (34:11):
Now's the time to start a lean and mean fab joke.
Speaker 1 (34:14):
We've Oh, have I ever told you my you have
family semiconductor fab apostrophe, Although that wouldn't be with a fan,
but I do think that'd be a good name for
a chip's company, semi fabula anyway. Actually, we've never talked
about those nineteen seventies European champions too much on this show.
What's the story there? I don't know anything about them.
Speaker 3 (34:33):
Well, I'm being a little bit buzzed. But you did
see and that you're you know, in Europe in the
nineteen seventies you saw a state ownership and a number
of industrial firms. You saw fairly heavily state management in
a way that I think a lot of economists looking
at that thought did not make for economic you know,
sort of the most dynamic, over time innovative industrial programs
(34:53):
in Europe.
Speaker 2 (34:54):
Two quick questions. So, so far these deals seem to
be sort of ad hoc, individualized one offs, right, And
I'm curious if you have a sense that we're building
towards something that's much more broad, a much more sustained
model of I guess us interventionist involvement in the sphere
(35:14):
of strategically important companies. And then secondly, what happens to
these stakes if we get a new administration and the
Democrats come in or something like that.
Speaker 3 (35:24):
Yeah, So I think when this administration came into when
the Trump administration came into office, I think they actually
fairly early had identified a handful of areas where they
thought equity was appropriate. I think critical minerals is one
of those. And I think that that is guided in
part by a view that we aren't going to have
(35:45):
a domestic competitive market in critical minerals without either subsidies
or without a tariff wall, because China just is the
low cost producer. So I think there was kind of
a strategic view if we're going to do a lot
of investing in critical minerals, we're going to do a
lot of protect or other kinds of subsidies for these guys.
But because we as the government are creating this market
(36:06):
and it's not really a free market, we as the
government should also take some equity and have some upsides.
So I think there was a strategic view in that sector.
I think what we are seeing now is the Trump
administration is drastically broadening out its views of what sectors
the government should get involved in. You know, we see
(36:26):
that with the Intel deal. I'd also note just last
week the Chips Office, Chip's office at the Commerce Department
put out a notice of a new grant program for
semiconductor R and D, so not to build fabs, but
to do R and D program for semiconductors. And that
notice says right in it that bidders for these grants
(36:47):
may be expected to offer the government warrants or equity
as a piece of it. So they are clearly looking
to build this out. We obviously also earlier this year
when Nippon Steele bought into US Steals, saw the non
ecnomic golden share that Knepon Steel got. I think we're
going to see more of that in the Scifius context.
So I think they had a vision early on of
(37:08):
a couple of discrete areas. I take it to the
President and Secretary Lutnik and others just really like this concept,
and they are now in the process of broadening it
out quite a bit across a number of other sectors.
And they are probably broadening it out ahead of any
strategic vision. So I'm a little worried we're going to
see more of this and then they'll have to try
to back end some strategic vision after they have a
(37:30):
number number of these deals in the in the ladder.
Speaker 1 (37:33):
Well, let's say they expanded, or let's say, okay, maybe
we want to have multiple stakes in the same industry
such that there is some competition, et cetera. How much
firepower does the government have, how much capacity via the
Chips Act? Does it have to make deals like this?
Would it at some point need to get a fresh
allocation from Congress to spend more on this? How much
(37:56):
can it do?
Speaker 3 (37:57):
Yeah? Well, because of their legal theory is kind of
no one says we can't do this. When we spend money,
We're going to do it. I think there are ways
in which they could argue what we could We could
try to demand equity alongside lots of government spending and
grants programs, and we've even seen Secretary Lutnik talk about, well,
(38:18):
maybe the defense contractors should give us equity. The problem
they're going to run into is at some point, you know,
the amount of cash they're putting on the table for
a particular deal, a company is going to decide, you
know what, that's not worth it to me. Right, if
you're offering some company, you know, a major multinational fifty
million dollars to in grant money to you know, do
(38:39):
something you want them to do, but you also want
three percent, they're just going to say no.
Speaker 1 (38:42):
But like when we you know, when we talked about
the LPO back in the day, you know, there was
a fixed amount of money that had been allocated to
these various programs, and same with Chips et cetera. Like
how deep is that? Well, if the government wants to
do a lot more chips deals, not only nov it does,
maybe it just wants to pick a winner. Does it
(39:02):
have the sort of I guess they would say, in
the private sector context, dry powder to do more of
these deals.
Speaker 3 (39:08):
So you'd have to I'd actually have to ladder that
up and think about what are the different pots of
money they could potentially use. Here, they clearly have another
probably on the order of ten billion dollars of unallocated
JIPS money. LPO mostly a lending facility, but they still
have lots of unallocated lending power out of LPO now
(39:30):
because that's a lending facility, not a grant facility. Kind
of whether a company wants to give equity as part
of the loan, that's a complicated commercial view.
Speaker 1 (39:37):
But there is they say it's a convert, right they
could say they could say it's a convert and this
counts as lending. But right they because again under the theory, note,
who's going to stop them?
Speaker 3 (39:46):
Right? I mean that is their theory.
Speaker 2 (39:48):
Yeah, does the Intel have basically a shadow mandate? Now?
Because if I think about companies in the US, the
goal is to maximize shareholder value and that's been pretty
explicit over time, but now you're adding in, you know,
strategic ambitions and the public good aspect. To Joe's point,
(40:09):
is there a potential tension there? I?
Speaker 3 (40:12):
You know, I think Intel has obviously tried to protect
itself from that tension by negotiating this provision where by
and large the government has agreed to vote it shares
at the board's direction. I think you can see they
were trying to minimize political influence. There is another part
of the Intel deal where where actually there's kind of
a poison pill if against Intel splitting a part its
(40:36):
fab manufacturing part and its chip design part. There's been
a long debate around Intel about whether it should split
itself up or not, and the government did negotiate kind
of a poison pill against a split, so that that
is incorporated fully in the documents. But beyond that, Intel
I think has tried to, you know, minimize government influence
in stay to day operations. That this is a government
(40:58):
that wants to get involved in day to day corporate operations. Right.
We see the President talking about individual executives at individual companies,
and a Commerce secretary is very clear he thinks companies
should be doing things in the public interest. And I
think the board is clearly probably going to feel some
pressure that not just the government, but also the government
and its largest shareholder, one of its largest shareholders, are
(41:20):
going to be prodding it to do things that might
be in what they see as the Commerce Department or
the country's interest, even if those aren't in shareholder interest.
I think we are going to see that tension over
the next couple of years, even if Intel has tried
to insulate itself from that all.
Speaker 1 (41:36):
Right, Oh, Peter Harold, this was a fantastic overview. I
definitely have a much I feel like I understand these
deals much better than before. Really appreciate you coming on outlook.
Speaker 3 (41:46):
That was great to be on. Thanks so much for having.
Speaker 1 (41:48):
Me, you know, Tracy, I think the point that you
asked about how might do this change under, say, a
democratic administration, is to my mind one of the most
(42:08):
interesting questions because, like I said, the government already gets
a fifth of corporate profits. The government already can establish
rules and regulations via the regulatory process or the legislative
process about how companies work. What's new really to me
is the specificity this is about one company in particular,
and the ability to sort of circumvent Congress in the
(42:30):
management of individual companies, and that it's not easy to
change regulation or law with each administration. But if equity
stakes allow you to change how you interact with the
specific company, then you could really have very fast shifts
from one presidency to another.
Speaker 2 (42:46):
Yeah, I mean, I think there's also an optics element
in here, where if the administration said we're going to
raise the corporate tax rate, that would be unpopular, But
if they say we're going to create shareholder value for
the US citizens fair exactly, it plays a little bit differently.
I do think, you know, my last question about the
tension between being a strategic asset for the US government
(43:11):
and the wider US population versus being a company that's
all about profits and maximizing shareholder value. I think that's
a really interesting one because again I think back to
China and China the compromise there seems to be that
you have a very state interventionist system. But on the
other hand, no one seems to expect companies to be
(43:34):
massively profitable. Right. We spoke it down long about this,
Like maybe the Chinese system is, you know, we build
lots of stuff, we innovate and don't make that much money,
and I just don't know like how that works in
the US.
Speaker 1 (43:48):
No, it's a great question. I mean, think about it.
You know, from Intel's perspective, had it not been for
the Chips Act, or had it not been for all
of the concern learn about national security and US production,
at some point, the company might have decided, you know what,
we're going to be fabulous too, Like Nvidia is, whose
(44:09):
market cap is you know whatever, forty times as much,
And it could have been very much the case that
Intel today would be worth more as a company. Speak
of strategic missteps, could be worth more as a company
if it had never got into the fab game at all.
That if they just decided, you know what, we're going
to have all of our chips be made overseaed by
TSMC and others. So there is this thing that maybe
(44:30):
the company is worth less today because they've had this concern,
they've had this national security obligation that they've played along with.
Speaker 2 (44:36):
We should leave it there. I'm starting to get PTSD
flashbacks to my dad complaining about paying his taxes in
order to bail out his competitor airlines.
Speaker 3 (44:45):
Oh, that's funny.
Speaker 2 (44:46):
You always used to complain about that. He worked at Southwest,
which is one of the few airlines that never actually
went bankrupt.
Speaker 1 (44:52):
All right, I do wonder like when Peter talked about
standing to sue competitors plausibly, right, couldn't like a Samsung
US or an AMD or whatever. I don't know.
Speaker 2 (45:03):
I think an ambitious lawyer would probably be interested in
that case.
Speaker 1 (45:08):
But I think probably an ambitious CEO does not want
to get on the badity they clashing out. I want
to take a feed of the trough two one day,
and so maybe they let this one slide.
Speaker 2 (45:20):
All right, shall we leave it there.
Speaker 1 (45:21):
Let's leave it there.
Speaker 2 (45:22):
This has been another episode of the Odd Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (45:27):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our guesst Peter Harold. He's at Peter Harrel. Follow
our producers Carmen Rodriguez at Carman armand Dashill Bennett a
Dashbod and Keil Brooks and Kilbrooks. From our odd Laws content,
go to Bloomberg dot com slash odd Lots with the
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chat about all of these topics twenty four to seven
(45:47):
in our discord Discord dot gg slash on lots.
Speaker 2 (45:51):
And if you enjoy Oddlots, if you like it when
we dig into deals made by the US government, then
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And remember, if you are a Bloomberg subscriber, you can
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Apple Podcasts and follow the instructions there. Thanks for listening
Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
another episode of The Odd Laws podcast. I'm Joe Wisenthal and.
Speaker 2 (00:23):
I'm Tracy Alloway.
Speaker 1 (00:24):
Tracy, isn't it you who's said for a long time
that whenever the government does some of these deals, like
with Chips or maybe the early backing of Tesla, et cetera,
aren't you always like, why didn't the government get equity
stakes in these companies? Why are we just getting back
sort of loans that are more or less the same
amount of money we put in?
Speaker 3 (00:41):
Yeah?
Speaker 2 (00:42):
I think I have said that. Yeah, I mean it
seems like this weird sort of half ground where you
are investing in a company without asking anything in return.
Speaker 1 (00:51):
Yeah, to be fair, they do have milestones and provisions
and so forth. But yes, it does feel like some
of these funding structures have been i would say, at
least incomplete, to say the least, and the effectiveness has
been inconsistent. All that being said, the Trump administration, apparently
big fan of yours, listening to you over the years
(01:11):
on the podcast, with some recent deals, is sort of
getting into the equity business in some way.
Speaker 2 (01:17):
Yeah. So I've seen people describing this as more activist
industrial policy or state interventionist industrial policy. One thing I
will say, for a president who seems to like calling
other people communists quite a lot, he sure does enjoy
owning the means of production.
Speaker 1 (01:34):
Yeah, there's certainly some scrambling, right.
Speaker 2 (01:36):
Well, this is the other thing. The ideological scrambling has
been interesting to watch because you had people like Bernie
Sanders who were saying, well, the Intel deal is a
great return for the American people, And then you had
I can't remember the name, but you had a Republican
going like, oh, this is the end of capitalism. So
it's kind of funny to watch.
Speaker 1 (01:54):
It's super interesting, super confusing time. I'm not personally as
bothered by the lack of quote, taxpayer return on this stuff,
mostly because I view the goal or failure is is
there going to be a public benefit? Are we going
to have security because we could produce chips? Are we
going to have security because we financed domestically mining of
rare earth minerals and so forth? But these are like
(02:15):
the big questions, and I think we should learn more
about this sort of new approach and what's a continuation
of what we saw under Biden? What's different et cetera.
Whether any of this will work. Of course, by the way,
you know, we're talking about an Intel, so Intel specifically,
the government has taken some sort of warrant or something
I'm not totally sure on.
Speaker 2 (02:33):
They took shares I think almost a ten percent stick.
Speaker 1 (02:35):
Yeah, and also MP, which is of course the great
hope for whether the US could also mine rare earth
metals such as China. So pretty big deals and I
think we should talk about them.
Speaker 2 (02:46):
Can I just say? If you look at the HDS
function on Bloomberg, you can see that the United States
government is now listed as a top shareholder and if
you click into it, it says US Department of Commerce.
I don't know why. I just find that so crazing.
Speaker 1 (03:00):
I had not looked at that.
Speaker 2 (03:01):
Yeah, it's kind of funny, And I don't know. I
just have this vision of like Howard Lutnik, like checking
on his portfolio.
Speaker 1 (03:07):
Of it, we're going to get well, you know, we're
gonna get an eatif actually on ironically, our old friend
Lukawa and sure what, he had a really good post
yesterday pointing out the fact that it's very important the
shares of Intel and MP and one other one have
done very well. So a lot of people are sort
of making this trade of why would you not be
in the same trade as the US government If the
(03:29):
government does long Intel in some respects and the MP,
and given they're going to want to support their investment
and see a return, why would you as a shareholder
not want to sort of get ahead of that trainer
be on the same side.
Speaker 2 (03:39):
Oh wow, I'm looking at the Intel charge right now.
It's gone up a lot.
Speaker 1 (03:42):
It's gone up a lot. So this is a meaty
subject that we have to talk about further. So I'm
very excited to say we have the perfect guest, someone
who's been talking about this, someone who even recently contributed
something to the Odd Loot's newsletter specifically about the MP deal.
We are going to be speaking with Peter Harrow. He's
a non resident fellow at the Carnegie Endowment for International Peace.
He was also serving in the Biden White House, a
(04:04):
National Security Council, Economic Council, and he's gonna talk us
through these deals. So, Peter, thank you so much for
coming on odd Lots.
Speaker 3 (04:12):
That's great to be on. Thanks for having me.
Speaker 1 (04:14):
Why don't you just sort of give us a very
brief background or your background or your work and why
you're particularly interested in these deals the arrangement.
Speaker 3 (04:23):
So I served at the Biden White House for the
first two years or so of the administration doing industrial policy,
and you know, it's interesting I'd actually gotten into the
industrial policy file for the White House because back during
the campaign in twenty twenty I was advising the Biden
campaign and Brian Diese, who was with the campaign then
(04:45):
later became the National Economic Council Director, came to me
and was like, you know, it's COVID times. We have
all these supply chain issues. You know, their podcasts talk
about the supply issues. Maybe we should do something about this.
And so I actually on the campaign had put to
together what was a campaign pledge that then candidate Biden
(05:05):
rolled out in mid twenty twenty on how you could
strengthen American supply chains and the downside of doing that
is then you get to you win the life. President
wins the election and Brian East calls you back up
and says, hey, you remember that thing you did last summer,
how would you like to come in and start getting
industrial policy along with a whole huge team of other
people going in this country again.
Speaker 2 (05:25):
So just to sort of set the scene before we
talk about why these deals are unusual in some respects,
can you talk about how government support of industry has
happened in the past, because I'm thinking about something like
the Chips Act. I don't remember equity stakes ever being
mentioned in that. What was the quid pro quo in
these sorts of previous government deals.
Speaker 3 (05:47):
Yeah, and Tracey, I appreciated the comment you made in
your opening about, you know how you've talked previous about
maybe there should be some government upside in when the
government is investing money in some technology or some development
of some industrial capacity. That is very, very unusual in
American history if you look at the history in the
United States of government ownership of private sector companies and
(06:11):
has almost always only been in the context of bailouts.
You know. So in the nineteen thirties, a bunch of
banks are failing some of the New Deal programs. In particular,
something called the Reconstruction Finance Corporation takes stakes in at
least forty percent or so of America's banks again in
nineteen thirties, but that's really fundamentally a bailout program for
(06:33):
the banks because the banks are going under similarly famous
examples in more recent history in nineteen seventy nine, nineteen eighty,
Chrysler's going bankrupt. It's part of a bailout of Chrysler.
The government takes warrants in Chrysler. Then during two thousand
and eight and the financial crisis, as part of the
bailouts of AIG and some of the other financial companies,
(06:54):
as well as some of the bailouts of automakers back then,
government takes equity, but historically we've only done it during
kind of bailouts, and the government when it has taken
these equity stakes as part of bailouts, has always made
clear our goal was to own this for as short
a time as possible.
Speaker 2 (07:10):
Yeah, because I think I remember from the two thousand
and eight auto bailouts, those were warrants, right, The goal
was always to like eventually get out of that position exactly.
Speaker 3 (07:20):
It was very clear, you know, you go back, you
read both the Treasury Department guidance at the time, you
read the press at the time, you read the statute,
and it was kind of we're going to take this
as a security interest for the bailout, you know, for
as short a time as possible, and the Treasury Department
exited most of those positions within a couple of years,
certainly as soon as commercially feasible. And I think what
(07:42):
the Trump administration is doing now is really quite different,
where they seem to be seeing themselves seeing the US
government as a long term investor in a set of sectors,
in a set of companies where they think having that
government capital as a long term investor will help a
strengthen the company and the sector and be potentially give
(08:04):
some upside to the US government.
Speaker 1 (08:06):
So what do you with Intel and p What do
you give the sort of broad as you understand them,
the broad stroke structure of these arrangements. What is the
nature of these investments, What are the obligations of the
companies and so forth? Give us the sort of outline
of them.
Speaker 3 (08:21):
Yeah, and Joe, to pick up on a point you
had made during your introduction, It's not that the idea
of government support for chip manufacturing in the US or
for rare earths in the US is new. I mean,
there was a chips program under the Biden administration. There have,
going back for more than a decade now, been programs
to try to get US rare earths processing. Historically, those
(08:45):
things have been done through grants and loans, not equity,
you know. So there is a grant to Intel to
pay basically fifteen percent. This is prior to the Trump administration.
There's a grantee Intel to pay basically fifteen percent one
five percent of the cost that Intel was going to
incur to build four sets of fabs here in the
United States. There were grants again prior to the Trump
(09:07):
administration to MP Materials to help subsidize MP Materials building
a rare earth's mine and processing facility. So we've historically
done this through grants and loans, and as you say,
the idea was the public return was what we have
chip manufacturing in the US or we have rare earth's
processing in the US. What the Trump administration has done
(09:30):
is converted what were grant and loan programs into programs
whereas part of the grant or loan, the government is
taking an equity stake. In the Intel case, it is
taking a nine point nine percent equity stake in exchange
for transferring the unallocated, the unspent part of that previous
(09:53):
Intel grant to Intel. So they instead of doing it
out over years as Intel built the fab They have
now transferred just under six billion dollars in cash to
Intel and gotten equity in return. And they've also actually
relieved Intel of some of its legal obligations to build
the fabs, so sort of converting this grant into an
equity purchase. Similar with MP. That the MP deal is
(10:16):
extremely complicated. You know, I wrote a four thousand word
piece for you along with my colleague Garnob Dutta on this,
But basically, DoD has contracted with MP Materials. The Department
of Defense, or maybe we call it Department of Warnow
has contracted with MP Materials to scale up a mine
(10:36):
in California to mine for rare earth, and then to
scale up in both California and Texas a processing facility
to turn those rare earths into magnets which are used
in all kinds of industrial applications. And as part of
this very large contract to pay MP Materials to scale
up the mining and processing operations, the government MP has
(10:57):
given the government to fifteen percent stake in MP Defense
departments now the largest shareholder there.
Speaker 2 (11:04):
Just on the Intel deal, you mentioned that the grants
and loans that were previously given under the Chips Act.
Those came with milestones that Intel had to meet right
in terms of building fabs and actually expanding manufacturing of
semiconductors in the US. But under this new deal, those
are now delinked from the equity stake. I guess do
(11:26):
we have any sense of what the Trump Administration's actual
goals are in this deal, because I could understand, you know,
if they give a company money and they say you
have to do the following things to expand production, that
would make sense. But if they say have some money
and make sure you give us a shareholder return, that
seems a little bit different.
Speaker 3 (11:46):
It is a different deal. As you say, Tracy, the
original deal between the Commerce Department and Intel was planning
to dole out about eight billion dollars over a number
of years with the payments to Intel at that time
grant payments made to Intel as Intel met certain greed
(12:07):
milestones for how they were building out four sets of
fabs Ohio, Arizona, New Mexico, and Oregon. According to the
SEC filings that Intel has made, Intel is now, as
we discussed, relieved of those milestone obligations. Now, I think
the Trump Administration's view is that well, by injecting capital
(12:30):
into Intel, by taking an equity stake in Intel, we
the US government are sending a very strong signal of
support to Intel. Both gives them some capital upfront, but
it also gives them this very strong signal of support
that will help Intel go around and get customers, get
other investors to come in. They are now They also
(12:52):
now have Nvidia coming in as an investor, so there's
a little bit of a record already to suggest that
might be happening. But it's kind of rather than and
here are things we want you to do, we will
pay you for milestones. It is more of an approach
if we are going to bet on you as a
company and hope that our bet on you helps you
succeed over time. As you said, they're actually up. The
government's stake is up I think sixty percent, So it's
(13:15):
cash wise turned out okay for them so far. Yeah.
Speaker 1 (13:17):
I was gonna say it's been a good trade. And
maybe some of the reason that the stock has rallied.
Maybe it's just the sort of pure logic as you expressed,
or it could just be sort of like it could
be sort of memestock traders people are excited about here's
a thing that's going on. We're just want to be
in on the trade. From your perspective, though, do you
(13:38):
see something about the structure of this deal such that, frankly,
that there's reason to be more hopeful about Intel's future
in this arrangement, just on a fundamental basis.
Speaker 3 (13:51):
So I think of this as a very high risk
bet in the following ways. If you go and talk
to pretty much anyone in the semiconductor industry, and if
you've talked to them, and you guys have talked to
them over the last couple of years, you hear a
lot of concern about Intel's health. You know, Intel made
(14:12):
a couple of huge strategic missteps. They decided in two
thousand and seven that they did not want to produce
chips for the iPhone, you know, huge strategic misstep. They
decided in the mid twenty tens, but they were not
going to bet on something called EUV lithography, which is
advanced lithography that TSMC uses to make what are today
(14:34):
hands down the world's most advanced chips. And over the
last couple of years, Intel has been playing a huge
catch up game, and there've been very deep doubts across
the industry about whether Intel can actually do this catch
up game. I think the government's theory here is, well,
if we show support for Intel, we can encourage you know,
(14:58):
other investors to come in. We can encourage the potential
customers of Intel chips to come in, you know, Apple
and Nvidia. We can encourage customers to come in, and
we can really bet on this company and help get
them not just the capital but also the customers and
other things they need to turn it around. That's the bet.
Speaker 1 (15:33):
Something you pointed out in your piece for us on
MP and other people have talked about this as well.
But that deal provides like an order book, the government
is going to buy more. And we've talked about this
with other guests that it's not just enough in some
of these cases to subsidize supply or make it easier
to build, but it also helps to have that guaranteed
buyer for several years out et cetera, and so that
(15:55):
when something is produced there is knowledge of an end customer.
Is there any such provision relation in the Intel deal
in terms of if they build X, that there will
be a buyer for X.
Speaker 3 (16:06):
No, so in the Intel deal there's no kind of
guaranteed end customer government support for the end customer. With
one exception, I mean, going back to the Biden administration days,
there's there's been a little piece of this deal that
is actually not with the commerce departments, with the Defense
Department to build highly secure chips for the Pentagon. Like there,
(16:28):
there is obviously a guaranteed customer, but that's a small
piece of this deal.
Speaker 2 (16:31):
Could you argue that Intel's main problem isn't necessarily cash
in the first place. I think it has something like
ten billion in cash on its balance sheet, which is
probably a drop in the ocean if you're building fabs.
But on the other hand, you know, there is a
lot of capital crowding into the semiconductor space, and it seems,
given some of the missteps that the company has made previously,
(16:53):
maybe the issue is more management than actual balance sheet health.
Speaker 3 (16:59):
Yeah, so when I look Intel, I think it's biggest
problems aren't really access to capital, as you said. I mean,
even prior to the government investment, it's one hundred billion
dollar market cap company. It could raise money in the
debt markets. The biggest problems were can it do the
engineering to build advanced chips, Like, that's problem number one.
Speaker 2 (17:18):
Got to actually do the thing it says it's going
to do exactly.
Speaker 3 (17:22):
And related to that, are there going to be customers
to buy Intel's chips? And those two things are obviously
totally linked because if it can't do the engineering, there
won't be customers, and if it can't do the engineering,
there probably will be customers. I mean, I think the
big risk with the Intel deal is that we definitely
have an instance here of the government picking a winner. Right,
(17:45):
they are petty placing a huge bet on Intel and
not on TSMC and not on you know, startup semiconductor
companies that might actually be more innovative in this space,
and that is something you know, the government is not
historically done. You know, historically we've kind of said we
want to let companies go out and compete in the marketplace,
and we're not going to put a very heavy thumb
(18:07):
on the scale in favor of one particular kind of
you know, champion company here. And we are very much
seeing the government, even though it's not a formal contract here,
Clearly the impetus now is for the government to be
putting a thumb on the scale here for Intel and
I hope that helps them get customers and engineers in
the Like.
Speaker 2 (18:25):
What legal authority does the Trump administration actually have to
do this? So we spoke about the Chips Act. Pretty
sure the Chips Act doesn't say anything about taking equity
stakes in return for grants and loans. Could it be
something like the Defense Production Act or some other act
that I am unaware of that might be in the making.
Speaker 3 (18:45):
Well, you know, we talked about how there isn't a
lot of history for the US government taking equity stakes,
and there's not really any law out there that authorizes
the government to take equity stakes in private companies with
a handful of accept and the Chips Act is not
one of them. I think the Trump administration's legal theory
here basically boils down to two things. You know, First is, well,
(19:10):
the Chips Act may not say we can take an
equity steak, but it doesn't forbid us from taking an
equity steak, so why not? And then thing two on
their legal theory is who's going to sue us anyway?
I mean, Intel's not going to sue us, right, They
just agreed to this deal, and it's it's not clear
that anyone else really has legal standing to go into
(19:30):
court to sue over this. So, you know, like much
of the Trump administration, I think we are seeing a
lot of novel interpretive approaches to the law, but it
really does boil down to I think at its core,
there's no they have a very flexible authority. Legally speaking,
they have a very flexible grant authority. It was clearly
intended as a grant authority, not an equity authority. But
if you read the details of the grant authority, it
(19:52):
doesn't say you cannot take equity as a part of this.
It just says you can give grants, and they've interpreted
that as a allowing them to take equity as part
of the grant.
Speaker 1 (20:02):
I want to go back to the question about whether
the engineering capacity actually exists for Intel to become a
top flight producer of semiconductors.
Speaker 3 (20:13):
Again.
Speaker 1 (20:13):
You know, you mentioned the quote strategic missteps, whether it
was choosing not to build the chips for the iPhone
or to get into advanced UV lithography. But again, they
could have chosen to do those things and not execute
on them, like they could have made different strategic choices
and just not done them as well as TSMC. And
(20:34):
this also gets back to the MP deal because Okay,
like there is this big mine out in California that's
very rich in rare earths and so forth, But a
lot of the question is not whether you could dig
it out of the ground, but whether you can refine
these metals at a cost competitive price, especially compared to
the Chinese, who have invested a ton of this and
are clearly far and away the leader and the most
(20:55):
advanced infrastructure, et cetera. They're like, I'm curious with that deal.
Like with MP, do you perceive them as having the
same questions hanging over them about whether, Okay, they get
this money and they have this mind, can they create
these magnets at a market competitive price.
Speaker 3 (21:14):
Well, I think that the MP materials deal sort of
ensures that they are not going to create these magnets
at a market competitive price. But at some level that
doesn't matter because the government has agreed both to purchase
all of the off take of the magnet. So part
of this steal, the government is buying one hundred percent
of the magnets. Now, it could resell some of these
magnets to private parties, but it's a guaranteed purchaser of
(21:36):
all of them, and on top of being the guaranteed
purchaser of the magnets, it has also guaranteed profit margin
for MP. So I actually kind of get why private
investors are crowding into MP because it's sort of a
no loose business proposition at this point. But I do
think the reality to your point, Joe, is that China
is the low cost producer of rare earth magnets. It
(21:59):
just is. It has this scale and has multiple companies
that do it, and the best it has, the engineering,
it has no you know, low environmental regula. It is
the low cost producer. If we, as the United States,
do not want to be dependent on China for rare
earth magnets, we are going to have, at least in
the you know, near and mid term, to pay more
(22:19):
for those magnets. And so that subsidy is either going
to have to be a direct subsidy from the US
government like the MP materials deal, or it's going to
have to be an indirect subsidy like tariffs or something
else that forces US manufacturers to you know, pay US
producers because the foreign they're protected from foreign competition. And
that's just the reality of this market, and then you
(22:40):
get into this whole debate of you know, are the
national security needs? Are the economic security needs so great
that it is worth paying what will be a subsidy
to have that production here in the US.
Speaker 2 (22:51):
Well, talk to us about the corporate governance angle in
all of this. So with Intel, the US government is
getting a nine point nine percent stake. They also I
think have a golden share like they do in the
Knepond deal. Again, that's something that we tend to associate
with China's state interventionist style, and we should talk about
that a little bit later. But is Howard Lutnik going
(23:13):
to be showing up to Intel agms and participating in
the votes?
Speaker 3 (23:18):
This is another thing that worries me Tracy about the
government taking equity in companies without kind of a clear
statutory basis for it, because there isn't really any federal
set of regulations or laws about how the government should
manage its investments and what its role in corporate governance
(23:41):
should be. So we're sort of seeing ad hoc approaches
as the government does these deals. In the Intel case,
if you read the SEC filings, the government has basically
agreed to vote the shares the way the board recommends
the shares be voted, except in a couple of major
types of transactions, can overall change control, you know, change
(24:01):
in ownership of control transaction. So that's a great deal
for the board because actually now the board of the
Intel knows it has ten percent or nine point nine
percent of the shares to do whatever it wants. A
great deal for the board. But that's unique to the
Intel deal, and it will be interesting to see as
these play out, do we see more and more kind
of direct government, you know, involvement in the management of
(24:25):
the companies.
Speaker 1 (24:27):
It's interesting. One of the things that I think about sometimes.
So the corporate income tax rate in the United States
is twenty one percent. Now, if I own twenty one
percent of a private company, right, I'm in theory entitled
to twenty one percent of their income. It's kind of
one way to think about it. In a sense, the
US government already owns about a fifth of every private
(24:47):
company in America, right, because you have your profits, and
then seventy nine percent goes to the normal shareholders, then
twenty one percent goes to the government. There is a
sense in which the government already owns a fifth of
every company for taxation. The difference is, however, exactly what
you just identified, which is this is a very passive
equity stake that the government sort of has in every company.
(25:10):
So what's really changing is this potential not that the
government is going to collect income from the profits, but
this potential for new ways for sort of activist involvement
in the private sector beyond the sort of traditional regulatory
or legal environment that exists.
Speaker 3 (25:28):
Yeah, and it is both that this is going to
give potentially the government a way of meddling much more
specifically and with much more detail individual companies, and it
also is much more of the government potentially picking winners
within an industry. I mean, let's take the MP. You know,
MP is one of it's not the only company in
the US that is trying to get rares mining and
(25:51):
manufacturing going. Again, there are a number of other companies
that are doing this with mining operations elsewhere in the US.
And there are also some companies that are in the
technology space that are saying, you know what, we might
be able to create magnets that do what rare earth
magnets do, but without using any rare earths. You know,
we're developing new materials and the government here rather than
(26:13):
sort of saying, you know what, we have a program.
We're giving a tax incentive to anybody who qualifies to
kind of let all of these ideas flourish, the government
is saying, you know what, we're guaranteeing that MP's going
to make the money here without actually knowing is MP
like the most cost efficient, the best technological bet. It
is very much a picking winners and losers rather than
(26:35):
seeing what flourishes in the market approach.
Speaker 2 (26:38):
Do we have any sense of how foreign governments and
foreign businesses are reacting to this? So I'm aware that
Intel put out a statement that basically warned that having
the US government as a major shareholder could be problematic
for the company. It could lead to maybe additional regulations
or obligations or restrictions abroad. Have you picked up any
(27:00):
I guess scuttle butt on how scuttle butt too weird
a word?
Speaker 1 (27:04):
No, it's great, it's a great word.
Speaker 2 (27:06):
All right, all right, any scuttle butt on how foreign
entities are reacting.
Speaker 3 (27:12):
So I do think foreign governments are worried about what
it means that the US government is investing in specific companies,
and they're worried about it in two ways. One of
which is, just like the classic governments, worry about what
other government subsidies are going to do. You know, if
there's more subsidies for Intel, how is that going to
(27:32):
affect European manufacturing? Also, we Intel in particular had been
planning to build fabs in Europe. Actually, prior to the
US government buy in, had canceled those fabs in Europe.
But there's worry like would Intel still be a reliable
partner if it is investing overseas or is it just
going to invest in the US now that it's US
government owned. And then the other one is I do
(27:54):
think that for companies, particularly technology companies, you know, we
are in this era of geopolitics where we worry a
lot of about Chinese companies, or Chinese companies worry about
the security issue issues around American companies. I think European
companies are increasingly getting worried about, you know, is American
tech safe to be used? And the closer the US
government gets to a company, I think the more you're
(28:17):
going to see foreign governments wonder about those security risks.
I mean, I just look at what Microsoft had to
do a couple of months ago where they actually said,
in response to European privacy concerns about Microsoft products in Europe,
that Microsoft would be prepared to sue the US government
if the US government started putting unfair privacy requests on
(28:40):
Microsoft about European customers. I don't think anyone would believe
that Intel's going to sue the US government at this
point to protect the privacy rights of its customers.
Speaker 1 (29:05):
So you mentioned the issue of picking winners, which of
course is an issue that precedes any equity stake. Every
industrial policy in the world always has to think about
this risk or possibility, and traditionally the way it sometimes
quote works in the context of sort of developing economies
is they might have that sort of export test. And
(29:27):
we've talked about that a bunch on the show. Our
customers in foreign markets buying your thing, and if so,
that's a sign that you're building something competitive and we're
going to keep backing you. And if not, this is
a sign that you're not working out. And so there's
this mechanism. If we're concerned about the idea that the
government is picking winners with Mper, picking winners with Intel
(29:47):
let's say again with MP, should the direction be that
not that we get rid of the equity components, but
that we just sort of build out the program so
that any entity at any stage could theoretically make the
US government a partner, and that partnership is contingent on
its success in some market measure.
Speaker 3 (30:06):
Well, I guess I look at that as Joe, you know,
you talked about taxes earlier. Isn't that what a tax
credits for? I mean, if you look at the Chips Act,
the original Chips Act, we all focused on the grant
part of the Chips Act, and this is the grant
part of the Chips Act that we're talking about now.
But actually, I think the more important part of the
Chips Act is there was a twenty five percent investment
tax credit that lets anybody building a fab in the
(30:29):
US take twenty five percent of the cost of that
fab as a fully refundable tax credit. So I mean,
it's just a very great deal. I guess. I actually,
as a general, bias would prefer relatively more neutral approaches
that let companies thrive and succeed in the marketplace. And
where you do have grant programs, and there will always
(30:50):
be a place for grant programs. I think you want
to do it in a fairly broad based way and
seed multiple differents. I mean, I've been talking just recently
with Jiggershaw previous guests when your podcast of his time
at at LPO, and he, you know, he had this approach.
He's like, I wanted to say yes to everybody, you know,
(31:11):
anybody who could fit the criteria of getting a loan.
I wanted to say yes to because we want to
place a bunch of different nets, on a bunch of
different technologies, on a bunch of different investments. And you know,
I think there's a lot to be said for that,
which is also historically how we have come now. Maybe
there are rare cases if there's a market failure, there's
(31:32):
some sort of market where there's going to be a
natural monopoly. Maybe in those cases it does make sense.
You know, there's natural monopoly or some kind of market
failure and you're only going to have one or two
potentially successful companies, maybe you do want the government to
take a stake there, because if it's kind of guaranteeing
the market and some upside for the taxpayer makes sense.
(31:53):
But I generally think that should be a pretty rare
instance in our in our capitalist system.
Speaker 2 (31:59):
So there is irony here that an administration which has
been very critical of China and you know, criticize them
for manipulating their market or cheating on global trade rules,
or doing illegal subsidies and all of that kind of stuff,
is now pursuing a more interventionist approach that does seem
very reminiscent of what happens in China. Can you compare
(32:22):
and contrast those two systems and maybe talk about how
US policymakers are thinking about Chinese industrial policy at the moment.
Speaker 3 (32:31):
I mean, there is kind of an element here, right,
we're looking a little bit like state capitalism with American characteristics.
I think we should be you know, open and direct
about that. There are actually some differences. I mean, if
you look at the Chinese industrial policy kind of approach,
there are both similarities and differences. I think one big
difference is actually when it comes to equity stakes in China,
(32:54):
a lot of the equity is actually done at the
provincial government level. You know, it's sort of an see
that's owned by a particular province, relatively less at the
central government level. In China, the central government does tend
to do a bunch of you know, grants and R
and D programs and that kind of thing, but they
have a very heavy provincial level element to these. The
other thing that I think China does, frankly pretty well
(33:15):
kind of to where we just were talking Tracy and
Joe is China does tend to bet on multiple companies.
If you look at why they have a very successful
EV sector right now, it is in part because you
had lots of provinces investing in lots of companies, plus
a tremendous amount of central government support on the demand
side as well as on the supply side of the equation.
(33:37):
So you have dozens of EV companies there out in
the marketplace battling every week to build better technology and
to sell it to customers. So they've kind of created
this state capitalism, but state capitalism that is actually in
some of these sectors quite competitive in a way that
spurs innovation. And I think if we're going to do
more of that, we need to make sure we are
(33:59):
also focused on how do we keep this competitive just
spur innovation and don't just kind of, you know, back
a bunch of flabby nineteen seventies European style national champions,
which you know didn't turn out too well in the past.
Speaker 2 (34:11):
Now's the time to start a lean and mean fab joke.
Speaker 1 (34:14):
We've Oh, have I ever told you my you have
family semiconductor fab apostrophe, Although that wouldn't be with a fan,
but I do think that'd be a good name for
a chip's company, semi fabula anyway. Actually, we've never talked
about those nineteen seventies European champions too much on this show.
What's the story there? I don't know anything about them.
Speaker 3 (34:33):
Well, I'm being a little bit buzzed. But you did
see and that you're you know, in Europe in the
nineteen seventies you saw a state ownership and a number
of industrial firms. You saw fairly heavily state management in
a way that I think a lot of economists looking
at that thought did not make for economic you know,
sort of the most dynamic, over time innovative industrial programs
(34:53):
in Europe.
Speaker 2 (34:54):
Two quick questions. So, so far these deals seem to
be sort of ad hoc, individualized one offs, right, And
I'm curious if you have a sense that we're building
towards something that's much more broad, a much more sustained
model of I guess us interventionist involvement in the sphere
(35:14):
of strategically important companies. And then secondly, what happens to
these stakes if we get a new administration and the
Democrats come in or something like that.
Speaker 3 (35:24):
Yeah, So I think when this administration came into when
the Trump administration came into office, I think they actually
fairly early had identified a handful of areas where they
thought equity was appropriate. I think critical minerals is one
of those. And I think that that is guided in
part by a view that we aren't going to have
(35:45):
a domestic competitive market in critical minerals without either subsidies
or without a tariff wall, because China just is the
low cost producer. So I think there was kind of
a strategic view if we're going to do a lot
of investing in critical minerals, we're going to do a
lot of protect or other kinds of subsidies for these guys.
But because we as the government are creating this market
(36:06):
and it's not really a free market, we as the
government should also take some equity and have some upsides.
So I think there was a strategic view in that sector.
I think what we are seeing now is the Trump
administration is drastically broadening out its views of what sectors
the government should get involved in. You know, we see
(36:26):
that with the Intel deal. I'd also note just last
week the Chips Office, Chip's office at the Commerce Department
put out a notice of a new grant program for
semiconductor R and D, so not to build fabs, but
to do R and D program for semiconductors. And that
notice says right in it that bidders for these grants
(36:47):
may be expected to offer the government warrants or equity
as a piece of it. So they are clearly looking
to build this out. We obviously also earlier this year
when Nippon Steele bought into US Steals, saw the non
ecnomic golden share that Knepon Steel got. I think we're
going to see more of that in the Scifius context.
So I think they had a vision early on of
(37:08):
a couple of discrete areas. I take it to the
President and Secretary Lutnik and others just really like this concept,
and they are now in the process of broadening it
out quite a bit across a number of other sectors.
And they are probably broadening it out ahead of any
strategic vision. So I'm a little worried we're going to
see more of this and then they'll have to try
to back end some strategic vision after they have a
(37:30):
number number of these deals in the in the ladder.
Speaker 1 (37:33):
Well, let's say they expanded, or let's say, okay, maybe
we want to have multiple stakes in the same industry
such that there is some competition, et cetera. How much
firepower does the government have, how much capacity via the
Chips Act? Does it have to make deals like this?
Would it at some point need to get a fresh
allocation from Congress to spend more on this? How much
(37:56):
can it do?
Speaker 3 (37:57):
Yeah? Well, because of their legal theory is kind of
no one says we can't do this. When we spend money,
We're going to do it. I think there are ways
in which they could argue what we could We could
try to demand equity alongside lots of government spending and
grants programs, and we've even seen Secretary Lutnik talk about, well,
(38:18):
maybe the defense contractors should give us equity. The problem
they're going to run into is at some point, you know,
the amount of cash they're putting on the table for
a particular deal, a company is going to decide, you
know what, that's not worth it to me. Right, if
you're offering some company, you know, a major multinational fifty
million dollars to in grant money to you know, do
(38:39):
something you want them to do, but you also want
three percent, they're just going to say no.
Speaker 1 (38:42):
But like when we you know, when we talked about
the LPO back in the day, you know, there was
a fixed amount of money that had been allocated to
these various programs, and same with Chips et cetera. Like
how deep is that? Well, if the government wants to
do a lot more chips deals, not only nov it does,
maybe it just wants to pick a winner. Does it
(39:02):
have the sort of I guess they would say, in
the private sector context, dry powder to do more of
these deals.
Speaker 3 (39:08):
So you'd have to I'd actually have to ladder that
up and think about what are the different pots of
money they could potentially use. Here, they clearly have another
probably on the order of ten billion dollars of unallocated
JIPS money. LPO mostly a lending facility, but they still
have lots of unallocated lending power out of LPO now
(39:30):
because that's a lending facility, not a grant facility. Kind
of whether a company wants to give equity as part
of the loan, that's a complicated commercial view.
Speaker 1 (39:37):
But there is they say it's a convert, right they
could say they could say it's a convert and this
counts as lending. But right they because again under the theory, note,
who's going to stop them?
Speaker 3 (39:46):
Right? I mean that is their theory.
Speaker 2 (39:48):
Yeah, does the Intel have basically a shadow mandate? Now?
Because if I think about companies in the US, the
goal is to maximize shareholder value and that's been pretty
explicit over time, but now you're adding in, you know,
strategic ambitions and the public good aspect. To Joe's point,
(40:09):
is there a potential tension there? I?
Speaker 3 (40:12):
You know, I think Intel has obviously tried to protect
itself from that tension by negotiating this provision where by
and large the government has agreed to vote it shares
at the board's direction. I think you can see they
were trying to minimize political influence. There is another part
of the Intel deal where where actually there's kind of
a poison pill if against Intel splitting a part its
(40:36):
fab manufacturing part and its chip design part. There's been
a long debate around Intel about whether it should split
itself up or not, and the government did negotiate kind
of a poison pill against a split, so that that
is incorporated fully in the documents. But beyond that, Intel
I think has tried to, you know, minimize government influence
in stay to day operations. That this is a government
(40:58):
that wants to get involved in day to day corporate operations. Right.
We see the President talking about individual executives at individual companies,
and a Commerce secretary is very clear he thinks companies
should be doing things in the public interest. And I
think the board is clearly probably going to feel some
pressure that not just the government, but also the government
and its largest shareholder, one of its largest shareholders, are
(41:20):
going to be prodding it to do things that might
be in what they see as the Commerce Department or
the country's interest, even if those aren't in shareholder interest.
I think we are going to see that tension over
the next couple of years, even if Intel has tried
to insulate itself from that all.
Speaker 1 (41:36):
Right, Oh, Peter Harold, this was a fantastic overview. I
definitely have a much I feel like I understand these
deals much better than before. Really appreciate you coming on outlook.
Speaker 3 (41:46):
That was great to be on. Thanks so much for having.
Speaker 1 (41:48):
Me, you know, Tracy, I think the point that you
asked about how might do this change under, say, a
democratic administration, is to my mind one of the most
(42:08):
interesting questions because, like I said, the government already gets
a fifth of corporate profits. The government already can establish
rules and regulations via the regulatory process or the legislative
process about how companies work. What's new really to me
is the specificity this is about one company in particular,
and the ability to sort of circumvent Congress in the
(42:30):
management of individual companies, and that it's not easy to
change regulation or law with each administration. But if equity
stakes allow you to change how you interact with the
specific company, then you could really have very fast shifts
from one presidency to another.
Speaker 2 (42:46):
Yeah, I mean, I think there's also an optics element
in here, where if the administration said we're going to
raise the corporate tax rate, that would be unpopular, But
if they say we're going to create shareholder value for
the US citizens fair exactly, it plays a little bit differently.
I do think, you know, my last question about the
tension between being a strategic asset for the US government
(43:11):
and the wider US population versus being a company that's
all about profits and maximizing shareholder value. I think that's
a really interesting one because again I think back to
China and China the compromise there seems to be that
you have a very state interventionist system. But on the
other hand, no one seems to expect companies to be
(43:34):
massively profitable. Right. We spoke it down long about this,
Like maybe the Chinese system is, you know, we build
lots of stuff, we innovate and don't make that much money,
and I just don't know like how that works in
the US.
Speaker 1 (43:48):
No, it's a great question. I mean, think about it.
You know, from Intel's perspective, had it not been for
the Chips Act, or had it not been for all
of the concern learn about national security and US production,
at some point, the company might have decided, you know what,
we're going to be fabulous too, Like Nvidia is, whose
(44:09):
market cap is you know whatever, forty times as much,
And it could have been very much the case that
Intel today would be worth more as a company. Speak
of strategic missteps, could be worth more as a company
if it had never got into the fab game at all.
That if they just decided, you know what, we're going
to have all of our chips be made overseaed by
TSMC and others. So there is this thing that maybe
(44:30):
the company is worth less today because they've had this concern,
they've had this national security obligation that they've played along with.
Speaker 2 (44:36):
We should leave it there. I'm starting to get PTSD
flashbacks to my dad complaining about paying his taxes in
order to bail out his competitor airlines.
Speaker 3 (44:45):
Oh, that's funny.
Speaker 2 (44:46):
You always used to complain about that. He worked at Southwest,
which is one of the few airlines that never actually
went bankrupt.
Speaker 1 (44:52):
All right, I do wonder like when Peter talked about
standing to sue competitors plausibly, right, couldn't like a Samsung
US or an AMD or whatever. I don't know.
Speaker 2 (45:03):
I think an ambitious lawyer would probably be interested in
that case.
Speaker 1 (45:08):
But I think probably an ambitious CEO does not want
to get on the badity they clashing out. I want
to take a feed of the trough two one day,
and so maybe they let this one slide.
Speaker 2 (45:20):
All right, shall we leave it there.
Speaker 1 (45:21):
Let's leave it there.
Speaker 2 (45:22):
This has been another episode of the Odd Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (45:27):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our guesst Peter Harold. He's at Peter Harrel. Follow
our producers Carmen Rodriguez at Carman armand Dashill Bennett a
Dashbod and Keil Brooks and Kilbrooks. From our odd Laws content,
go to Bloomberg dot com slash odd Lots with the
daily newsletter and all of our episodes, and you can
chat about all of these topics twenty four to seven
(45:47):
in our discord Discord dot gg slash on lots.
Speaker 2 (45:51):
And if you enjoy Oddlots, if you like it when
we dig into deals made by the US government, then
please leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
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Hosts And Creators
Joe Weisenthal
Tracy Alloway
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