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The writer is the senior fellow for geoeconomics and defence at the Council on Foreign Relations and served as the first US assistant secretary of defence for industrial base policy, 2023-25
By suing the board of Intel and the US government, shareholders in the chipmaker have defied the Trump administration. They claim the government had no right to demand equity in exchange for grants made to Intel during the Biden administration under the Chips Act to boost the semiconductor industry.
Honestly, we should welcome this lawsuit. Intel’s shareholders are doing what Congress seems unable to do: push back on the administration’s opportunistic, not very transparent and elastic interpretation of federal law to justify grabbing ownership in companies.
The Trump administration has moved aggressively, with about 30 deals in prominent companies such as Intel and Westinghouse as well as obscure start-ups in electron technology, rare earth element production and other critical minerals. This year, the Department of Defense established the Economic Defense Unit, known colloquially as “Deal Team Six”, to source and execute deals to the tune of up to $200bn.
But the administration is on shaky ground. Congress has granted equity authority to a handful of agencies, namely the International Development Finance Corporation and the Small Business Administration. It also supported the establishment of In-Q-Tel, a venture firm started by the CIA that invests in early-stage technology companies directly applicable to intelligence and national security operations.
The administration justifies its equity deals using the Defence Production Act (DPA), the Chips Act and other supply chain resilience laws to allow the commerce, energy and defence departments to pursue equity stakes in exchange for grants.
However, these laws were intended to save companies producing materials or goods necessary for national defence, incentivise investment in critical technologies and boost production in strategic sectors. Previous governments used these laws to offer private companies incentives that do not dilute equity, such as subsidies, grants and loans. The Trump administration has interpreted them as allowing the government to become a shareholder in companies — a potentially illegal shift. More disturbingly, it has offered few, if any, details on how the deals are structured.
But it would be unwise to dismiss equity as a tool to bolster supply chain security and alleviate economic chokepoints solely due to the Trump administration’s messy execution. Critical minerals, semiconductors, rare earth elements and electron technology provide inputs critical for current defence materials, next-generation technologies and future military capabilities.
Leaving it to markets to invest in capital-intensive sectors that are important for defence and supply chain resilience can leave gaps. One example is the US shift from being the main producer and exporter of rare earth magnets in the 1990s to being dependent on China, an adversary, for these critical inputs. Oddly, government stakes in industries essential to national security could reinforce one of America’s founding beliefs: ultimately, it is government’s responsibility, not business, to secure the resources necessary to defend the nation’s wellbeing.
Congress has leverage that it can use to set rules for government equity. Congress must reauthorise the DPA law by September 30 and is considering updating it to formally give the president the legal cover to take equity stakes in companies. Additionally, it needs to reauthorise the Export-Import Bank and is considering legislation to create stockpiles of rare earth elements and critical minerals.
Congress should clearly define when and how the government takes equity stakes and the guardrails necessary to support public investment for national defence. Congress is generally bipartisan on defence industrial policy. Right now, the administration risks squandering that support by barrelling forward without clear rules outlining what exactly constitutes a national security justification for partial government ownership and without protections outlawing conflicts of interest and preventing political patronage.
Governments taking stakes to secure supply chains needed for national defence could be a useful tool. But the current path of doing so risks favouritism, wasting taxpayer dollars and thoughtlessly picking winners. The Intel lawsuit should embolden other companies to challenge the government. But more importantly, it should embolden Congress to do its job.
