The week of September 1, 2025: Intel’s new role, gold, government statistics, the Fed, and much, much more.
Here (via Reuters) is an evocative story from June, 2023:
Intel will spend more than 30 billion euros ($33 billion) to develop two chip-making plants in Magdeburg as part of its expansion push in Europe, a deal Chancellor Olaf Scholz hailed on Monday as Germany’s biggest ever foreign investment.
Berlin has agreed subsidies worth nearly 10 billion euros with the U.S. chipmaker, a person familiar with the matter said, more than the 6.8 billion euros it had initially offered Intel to build two leading-edge facilities in the eastern city….
Intel CEO Pat Gelsinger said he was grateful to the government and the state of Saxony-Anhalt, where Magdeburg is located, for “fulfilling the vision of a vibrant, sustainable, leading-edge semiconductor industry in Germany and the EU”…
The government in Berlin is investing billions of euros in subsidies to lure tech companies, amid growing alarm over supply chain fragility and dependence on South Korea and Taiwan for chips.
Well, that rings a bell.
Much of the debate that had preceded the decision by Germany to offer Intel these subsidies would have been no less familiar to aficionadas of the industrial policy debate. Thus (a form of) comparative advantage was raised when one think-tanker quoted in the Financial Times wondered whether it would not be “more efficient to just buy cheap subsidized chips from the US.” It is an indication of European concerns about American reliability in the event of a crisis that that argument was not more persuasive.
Another objection essentially stemmed from the timing problem often associated with central planning (of which industrial policy is an example). The planners were handing over billions to manufacture leading-edge chips (used in AI, for example) for which there is for now little demand. The supply-chain risks that concern Germany today are focused on “power semiconductors,” tailor-made chips for industrial applications. The counterargument, reinforced doubtless by Germany’s current deindustrialization, was that investing in their manufacture was to invest in the past, not the future. The planners had picked their eventual “winner” (perhaps not wrongly in this case), but it was a winner that would be highly capital intensive and would take time to develop. Intel’s subsidies were intended to convince it to invest in the production of a product before there was much of a market for it.
That’s a risky bet at the best of times. It could perhaps be justified on national security grounds, but would the security being bought at such cost be an illusion? Building plants that could manufacture semiconductors would mean little if Germany could not get ahold of the chemicals and other materials needed to produce them. Many of those would have to be imported.
The same is true on this side of the Atlantic. According to a McKinsey survey published in March:
60 percent of the materials and chemicals required in semiconductor manufacturing do not currently have sufficient domestic supply to support scaling US semiconductor production.
This has not been lost on policymakers in the U.S. (and was reflected in some of the allocations of funds under the CHIPS Act). But the underlying hope has always been that a revival in American chip manufacturing would revive an ecosystem extensive enough both to support to secure it — and extensive is what it will have to be.
McKinsey:
Because many of these chemicals and materials are highly specialized and have no alternatives or substitutions, a disruption in the supply of any of these chemicals could potentially stall the entire chip manufacturing process.
Ideally, domestic sources of supply would evolve naturally, but this may take too long in current treacherous geopolitical conditions. Timing will weigh particularly heavily when it comes to products such as tungsten (tungsten is conductive, so it forms electrical connections between the various components on the wafers). According to McKinsey, 90 percent of the tungsten produced today comes from China or Russia. None has been mined in the U.S. for a decade, despite there being ample reserves here, yet another example of how restoration of the U.S. mining sector — or parts of it — will be an essential element in the restoration of secure strategic supply chains.
But back to Intel, only to discover that despite all those promised billions, expectations of likely “market demand” meant that construction in Magdeburg was paused for “approximately two years” last September as was a major (and subsidy-rich) project in Poland. Intel was coming under increasing financial pressure and evidently the subsidies would not be enough to compensate for the cash drain between the new facilities’ opening and sufficient demand kicking in (if it did). This July, Intel pulled out altogether. It was, said a spokesman, focusing more of its capex spending in the U.S., and was “fully aligned” with Donald Trump’s goal to rebuild American manufacturing.
In practice, by accepting billions of dollars (and commitments of more to come) under the CHIPS Act and another program, Intel had already agreed to take on the role of a American national champion capable of competing with (and at pinch substituting for) Taiwan’s TSMC. TSMC operates as a massive “pure play” foundry, acting as a contract manufacturer for companies such as Apple, Qualcomm, and Nvidia. It does not design any of its own chips but focuses solely on continually improving its manufacturing process, a task at which it has enjoyed remarkable success, with a global market share in its sector of some 60 percent. This rises to 90 percent in the case of advanced chips.
Should TSMC be unable to supply its U.S. customers, which given its Taiwanese home base is not inconceivable, the results would be catastrophic, not least for America’s defense sector, and thus America’s defense. Industrial policy has, with a few exceptions, a dismal record, but leaving the U.S. in a position where it would lack the chips it needs in the event of Chinese blockade of, or attack on, Taiwan seems… unwise. Ensuring that that does not occur will mean abandoning free market principle, but, as Adam Smith put it, “defense . . . is of much more importance than opulence.” Moreover, some of the financial justification for the heavy reliance on Asian production that characterizes America’s semiconductor supply chain relies on severely underpricing China risk.
When the government does have to interrupt the operation of free markets in the interest of national defense, it should do consistently and with a light touch. Unfortunately, it is hard to see how combating Beijing’s ambitions is consistent with the administration’s decision to “sell” permits to Nvidia and AMD to continue to supply China with advanced chips. And it is all too easy see how the White House’s recent treatment of Intel shows that a light touch is not what Trump has in mind.
In late August, the government took a 9.9 percent equity stake in Intel after a tumultuous few weeks in which its approach betrayed the influence of Corleone as well as Colbert (Jean-Baptiste, the 17th century French mercantilist not Stephen). It appears to have used questions raised by Senator Tom Cotton (R., Ark.) about previous involvement with Chinese companies by the company’s new CEO, Lip-Bu Tan as leverage to win it that stake.
After Cotton had raised his questions (which were worth asking), Trump posted on Truth Social that “the CEO of INTEL is highly CONFLICTED and must resign, immediately. There is no other solution to this problem.”
In reply, the board issued a statement:
Intel, the Board of Directors, and Lip-Bu Tan are deeply committed to advancing U.S. national and economic security interests and are making significant investments aligned with the President’s America First agenda. Intel has been manufacturing in America for 56 years. We are continuing to invest billions of dollars in domestic semiconductor R&D and manufacturing, including our new fab in Arizona that will run the most advanced manufacturing process technology in the country, and are the only company investing in leading logic process node development in the U.S. We look forward to our continued engagement with the Administration.
And engagement is what they got. Within a few days Trump was posting this on Truth Social:
I met with Mr. Lip-Bu Tan, of Intel, along with Secretary of Commerce, Howard Lutnick, and Secretary of the Treasury, Scott Bessent. The meeting was a very interesting one. His success and rise is an amazing story. Mr. Tan and my Cabinet members are going to spend time together, and bring suggestions to me during the next week.
They were going to bring suggestions to Trump?
The billions of taxpayer dollars that had gone or were going to Intel entitled politicians to ask how the company was being operated, but this seemed to imply something more. Intel’s shareholders must have begun to suspect that, in reality, their ownership of their company meant rather less than they had assumed.
And sure enough, it was soon (somewhat) diluted: Grant money paid or committed to Intel by the government under the CHIPS Act or the Secure Enclave program would be converted into Intel shares to give Uncle Sam that 9.9 percent stake. It was specified that the government would have no board representation “or other governance or information rights.” It would vote with the company’s board of directors on matters requiring shareholder approval with (unspecified) “limited exceptions.” That is not, sadly, the commendable act of restraint it seems. Intel’s board will be very conscious of the government’s expectations. If shareholders object, one hurdle they will have to overcome will be the government votes the board already has in its pocket.
This is a far from academic issue. In Germany and, for that matter, in Poland, Intel had been offered billions to start taking on the role of a European national champion. But bottom-line considerations meant that it walked away. Commenting at the time of the release of the company’s second quarter results in late July, Tan, referring to his predecessor’s time at the helm, observed that:
The capacity investments we made over the last several years were well ahead of demand and were unwise and excessive…. Our last full fiscal year of positive adjusted free cash flow was 2021. This is completely unacceptable.
Tan stressed that he did not “subscribe to the belief that if you build it, they will come.” The scaling back was not confined to faraway Germany and Poland. Intel remained “deeply committed” to the U.S. (of course), but “the same level of financial discipline” would be applied there too. And so, “we are further slowing construction in Ohio to ensure our spending is aligned with demand.” This was a reference to a massive project, starting with the construction of two fabs (semiconductor factories), for which billions of CHIPS Act and Ohio taxpayer funds have been committed, a part (already delayed) of a broader initiative hokily named “Silicon Heartland” initiative. Visit its website for a sample of language (emphasis added) hinting at corporatism’s harnessed capitalism.
The Silicon Heartlands goal is to bring semiconductor companies together as a group to strengthen the industry in the United States. By doing this it will improve national security, boost economic growth, promote innovation, protect intellectual property, and create sustainable and socially responsible manufacturing practices. Forming a technology cluster will lead to synergies that would not be possible if these companies operate independently. Bridging the highest level of research and development with the most advanced semiconductor manufacturing and design will create efficiency for new innovations.
Silicon Heartland intends to connect private investors, our federal government, state, local communities and American workers with leading universities, think-tanks, NGOs and of course, the leading technology companies of America. Bringing the diversification of ecosystems together as a consortium into America’s heartland to ensure our economic and strategic security and resiliency of critical electronics supply chain.
Tan also stipulated that continued investment in its Intel 14A process nodes (to put it too simply, a process node is the “recipe” used in chip manufacturing), one part of its development of next generation semiconductor manufacturing, would be “based on confirmed customer commitments. There are no more blank checks.”
Many are keen to point out that the 14A abandonment stuff could be more of a strategic threat. As in, a “help us, or else” to the US government…[G]iven how keen [the Trump administration] is on bringing chip manufacturing on-shore, the looming threat of a dead Intel node could prompt the US government to step in and help out.
Who knows what form this could take—there’s been plenty of speculation over the last few months, but no one can say for sure—but a part-nationalized Intel isn’t exactly far-fetched.
Nope, not far-fetched at all, as it was to turn out.
According to a report in the Wall Street Journal, Intel’s chairman had been interested in selling off the foundry business, which is loss-making. Tan reportedly disagreed, arguing, it was said (emphasis added), “that Intel’s foundry business is integral to its success and needed to ensure the U.S. doesn’t become reliant on foreign semiconductor companies.”
Assuming the WSJ’s story was accurate, the chairman was suggesting a common enough corporate strategy: Dispose of an underperforming asset, then move on. But to speculate, Tan may too have seen the issue in conventional terms (the foundry business — about 20-25 percent of sales — could be turned round and was needed to give the company critical mass) or he could have seen that the company’s purpose had been fundamentally changed by its acceptance of those taxpayer billions. Intel Inc might dispose of the foundry business, but Intel, national champion, would be expected to hang onto it, even more so with Trump in the White House.
If that was Tan’s calculation, it was correct. The terms of the agreement under which the government took its equity position in Intel also included a lightly poisoned pill to discourage the company from disposing of more than 49 percent of its foundry business within the next five years, a restriction unrelated to investment return and thus unlikely to please Intel’s private shareholders.
On the other hand, as Tan must have realized, being a national champion came with rewards as well as obligations. The Financial Times quoted Intel’s CFO as saying that the direct government holding in the company could incentivize potential customers to view Intel on a “different level.” The report’s authors added that:
So far, the likes of Nvidia, Apple and Qualcomm have not placed orders with Intel, which has struggled to convince them it has reliable manufacturing processes that could lure them away from TSMC.
Lest that point be missed, in its press release describing the government’s investment, Intel noted that it is “deeply engaged with current and potential customers and partners who share its commitment to building a strong and resilient U.S. semiconductor supply chain.”
The press release also contained statements welcoming the deal from the CEOs of Microsoft, Dell, HP, and AWS.
Microsoft’s CEO’s statement concluded as follows:
Intel’s continued investment in strengthening the U.S. semiconductor supply chain, supported by President Trump’s bold strategy to rebuild this critical industry on American soil, will benefit the country and broader technology ecosystem for years to come.”
It will be worth watching to see what steps will be taken to help that ecosystem develop, not least by shareholders in companies that will be expected to play their part.
Meanwhile, via Reuters (September 4):
President Donald Trump said on Thursday his administration would impose tariffs on semiconductor imports from companies not shifting production to the U.S., speaking ahead of a dinner with major technology company CEOs.
Harnessed capitalism is what it is. How well it will work will have to be seen (not that well, I reckon), as will the extent to which this administration will extend it into sectors where the motive for intervention is rooted not in genuine geopolitical necessity but an equally genuine, if thoroughly undesirable, conviction that Washington knows best or, for that matter, a belief that the business of America’s government is business. For the state to take a stake in a private company is questionable enough, but for this to become regular practice on the grounds that it is (supposedly) a “good deal” would, for political, economic, and institutional reasons, take the government into territory where it should not go.
Interventionists on the left will appreciate the precedent, however.
Capital Questions
Dominic Pino and I held the second Capital Questions webinar. Among other topics: The U.S. government’s equity stake in Intel via the CHIPS Act; recent moves by the Trump administration regarding Federal Reserve governor Lisa Cook, and potential market impacts; trade developments.
Please see the video here.
The Capital Record: Sound & Vision
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which is hosted by financier David L. Bahnsen makes use of another two formats to deliver Capital Matters’ defense of free markets. The original podcast continues, but if you want to watch David talk, please click on the YouTube link.
The 254th episode: (Podcast/YouTube)
David is so tired of talking about the tariff debacle of 2025 that this week he brought on a special guest to do some of the talking for him. Joel Griffith of Advancing American Freedom joins David for a further rap session on all that is wrong with the current tariff regime, but the two of them take a special weapon to the imbecility of a “tariff rebate.”
The 245th episode: (Podcast/YouTube)
David takes a look at certain efforts to undermine the spirit of the law, whether or not the letter of the law is followed, and what it means for our financial markets. This is a golden issue for Capital Record, an optimal application of where freedom and virtue must be juxtaposed.
The Capital Matters week that was . . .
Industrial Policy
The Trump administration’s proposal to take a 10 percent equity stake in Intel in exchange for government grants fundamentally misunderstands what makes America an economic superpower. The real danger is not that taxpayers could lose money on Intel’s stock. It is that Washington will lock itself into a pattern of even more political favoritism than already exists.
Europe
Britain and France are still heading toward financial crisis.
The yield on Britain’s 30-year government bonds (Gilts) continues to rise, and at the time of writing has hit 5.65 percent, taking the latest spike (the fifth, depending on how you measure them) to a new high for the year. Meanwhile, a pound bought €1.21 at the beginning of the year. Now it buys around €1.16…
There is still no obvious way for France, hamstrung by a parliament torn three ways between left/far-left, center-right/centrist and Marine Le Pen’s RN, to work its way through its current crisis…
Financial markets are noticing: Ten-year French government bonds now yield about 80 basis points more than their German equivalents, quite a bit above the 50-point average of the past five years, and more or less what naughty old Italy has to pay.
Gold
Gold is spiking again, reaching (as I write) a record price in dollars, $3,579, versus $2,650 at the beginning of the year. Silver, too, has reached new heights and has outperformed gold this year as investors looked for a “cheaper” alternative. In part, these moves are the mathematical corollary of the weakness of the dollar (if not entirely, gold is at or near its peak in euros too), but not just that. The dollar and, by extension, Treasuries have benefited from being seen, among their other qualities, as safe havens. Their claim to that status is not so strong as it was…
Central banks have not just been moving gold, they have also been buying it. According to Goldman Sachs, they have increased their purchases of gold five-fold since Russia’s full-scale invasion of Ukraine…
Regulation
Massachusetts State Senator Jason Lewis appears to suffer from nicotinophobia, the irrational fear of nicotine. He wants to add nicotine, which public health experts consider “relatively harmless,” to the list of drugs against which our country has been waging war — with dismal success — since the 1970s…
Ticketmaster is now lobbying the administration to impose a resale price cap, limiting ticket resales to just 20 percent above face value. That may sound like a win for fans, but it’s not. It’s a clever attempt to crush rivals under the guise of reform, and it will only make the system worse…
Economics
I don’t think many Democrats’ failure to embrace the “abundance agenda” being advanced by Ezra Klein and Derek Thompson is evidence of rejection of libertarian economics. Klein and Thompson’s book, Abundance, does not advance libertarian economics, so rejecting it cannot mean rejecting libertarian economics…
Government Statistics
Senators who will be asked to confirm Antoni should focus on what matters: Antoni has been nominated to lead the Bureau of Labor Statistics and does not understand how to read, let alone produce, labor statistics…
William Beach & Erica Groshen:
We must repair our nation’s trust in the Bureau of Labor Statistics (BLS) and in federal statistics generally. That work must begin immediately to avoid the U.S. having to bear the cost of the level of economic uncertainty normal in China and other countries where businesses, investors, or ordinary people have lost confidence in their official statistics. Fortunately, this repair is doable. As recent BLS commissioners, we offer some ideas on how to do this. In our view, Congress, the White House, the advocacy community, employers, and the courts all have a role.
Repair is needed because, after BLS (following its usual objective methods, which always includes revisions of the two previous months’ numbers) reported evidence from hundreds of thousands of U.S. employers that the labor market is weakening, President Trump shot the messenger…
The Fed
There has already been a troubling pattern of officials passing between the White House and the Fed seamlessly. I criticized Janet Yellen and Lael Brainard for joining the Biden administration after having risen to high positions at the Federal Reserve. Central bankers should view it as a demotion to take a job working for a politician. Separation between the central bank and day-to-day politics is in politicians’ best interest and the public interest because it has a better track record of keeping inflation under control than politician-directed monetary policy..
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