Court challenge threatens Trump’s industrial agenda
Litigation over government equity stakes could determine whether one of the administration’s most aggressive economic tools survives
This is an excerpt from my latest Washington Post Intelligence report. Free link to the full report at the bottom.
The Trump administration is establishing an industrial policy unlike anything the United States has attempted outside of wartime or financial crisis.
Rather than relying on grants, loans or tax incentives, the administration is demanding ownership in companies. In deal after deal, negotiated at the highest levels of government — often by President Donald Trump himself, according to Trump — the administration is converting public funding into equity stakes in major U.S. companies, sometimes after making clear to company leadership that the alternative was potentially punitive.
For example, after the Trump administration struck a deal to take about a 10 percent of Intel in equity for the U.S. government, the president backed off his calls for CEO Lip-Bu Tan to resign, and said he had given Tan a reprieve for striking the deal. “He walked in wanting to keep his job, and he ended up giving us $10 billion for the United States,” Trump told reporters last August.
The administration has struck more than 20 equity deals giving the U.S. government stakes exceeding $50 billion in value, according to public reports and Washington Post Intelligence’s review of public filings and announcements. The Commerce Department holds stakes in at least nine companies across semiconductors and quantum computing, including Intel, PsiQuantum, IBM’s quantum subsidiary Anderon, GlobalFoundries and Diraq — as well as critical minerals firms USA Rare Earth and Vulcan Elements. The Defense Department holds stakes in MP Materials, Trilogy Metals, Vulcan Elements, and L3Harris. The Energy Department, meanwhile, holds a stake in Lithium Americas. The deals span semiconductors, rare earth minerals, nuclear energy, defense manufacturing and aerospace — and more are expected.
Proponents argue government equity is a useful industrial policy tool. China dominates critical mineral supply chains and semiconductor manufacturing in ways that create genuine national security risk for the United States. The private sector alone will not fill the gaps. The Development Finance Corporation, the Small Business Administration, and the Pentagon’s Office of Strategic Capital all have some form of congressionally authorized equity authority.
“If we do want these facilities here, without government support, I doubt we would get there,” said Sanjay Patnaik, director of the Center on Regulation and Markets at the Brookings Institution.
But elements of the administration’s approach to equity stakes present novel and serious risks. When the government becomes a major shareholder in companies it simultaneously regulates, funds and contracts with, structural conflicts of interest are unavoidable. Competitors face markets warped by political ties. Legal experts warn that companies subject themselves to the preferences of whoever controls the executive branch, which can change with an election. And many deals rest on statutory authority never designed to support them.
“It gives the United States government a lot of say and influence over how private corporations are run, kind of indefinitely,” said University of Colorado Law School Professor Ann Lipton. “That’s a problem, because it gives private corporations less incentive to compete on the merits of their products, it harms competitors who might have better products, and it distorts the marketplace in a way that is at odds with how we’ve designed a capitalist system.”
Now the scheme faces its first major legal challenge. On March 5, Intel shareholder Richard Paisner filed suit in Delaware Chancery Court against Intel CEO Tan, the Intel board of directors, Commerce Secretary Howard Lutnick and the Commerce Department. The complaint alleges that Intel’s board breached its fiduciary duties by approving a deal transferring 9.9 percent of the company’s equity to the federal government in exchange for $8.9 billion in Chips Act funding Intel had already been promised — and that the transaction lacked lawful statutory basis. Portions of the complaint that had been redacted were unsealed June 17, providing a detailed picture of how the deal was allegedly made.
The newly unredacted complaint depicts a negotiation process that allegedly shows government pressure and was concluded in days. It alleges, according to Intel board documents produced to plaintiff’s attorneys under Delaware’s books-and-records statute and attached as exhibits to the complaint, that CHIPS Program Office General Counsel Dave Shapiro told Intel CFO and Executive Vice President David Zinsner last Aug.18 that Intel should not make the “mistake of thinking that this is a negotiation” — and that Trump was expecting an announcement by Friday. Shapiro allegedly warned that rejection would have “consequences” he could not predict, and urged Intel to “consider benefits of having a friend in this administration,” according to the documents attached as exhibits to the complaint. The board was allegedly first informed of the equity demand on Aug. 20, only two days before it approved the deal, without legal opinion on whether the transaction was lawful and no documented analysis of alternatives.
Intel declined to comment and didn’t make Tan or Zinsner available for comment. The Commerce Department did not respond to a request to make Shapiro available for comment.
Congressional scrutiny of other Trump equity deals is intensifying in parallel. House Science Committee Ranking Member Zoe Lofgren (D-California) has condemned the USA Rare Earth equity deal, alleging it is a “massive personal conflict” given its links to Lutnick’s family firm Cantor Fitzgerald — and Democrats have demanded answers about the Vulcan Elements deal, which allegedly benefited a company where Trump’s eldest son, Donald Trump Jr., holds an investment stake.
A spokesman for USA Rare Earth defended the deal in a statement to WP Intelligence: “The recently announced definitive agreements with the U.S. Government followed extensive diligence conducted by technical professionals and advisers within the federal government.”
Vulcan did not respond when reached for comment.
Intel and the Commerce Department have both moved to dismiss the complaint, with Commerce arguing the Chips Act’s broad authority to enter agreements “on such terms as the secretary considers appropriate” covers the equity stake.
“The only special interest guiding the Trump administration’s decision-making is the best interest of the American people,” White House Spokesman Kush Desai told WP Intelligence. “Securing and reshoring America’s critical supply chains has been a top priority for President Trump, and the Trump administration continues to take historic action to safeguard America’s national and economic security.”
Meanwhile, the deals are likely to continue, often to the short-term benefit of the companies that struck them.
“There are lots of ways in which the government can shower favoritism on the companies it owns a stake in at the expense of another company that might have a better product but hasn’t cut the government in,” said Peter Harrell, former National Security Council official and visiting scholar at Georgetown’s Institute of International Economic Law.
You can read the entire report with this free link. https://wapo.st/4eLu39Z
All I have to say on this, Fourth of July is thank God for your father-in-law the mighty max the ACLU af plus I just listen to it. He is the entire song there’s two chords in born in the USA. all the drama is the mighty max, he’s the rest and my love.