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The writer is an adjunct professor at NYU School of Law and former head of North America for CIC, China’s sovereign wealth fund
In February, President Donald Trump directed the Treasury and commerce secretaries to develop a plan for a US sovereign wealth fund.
Although such a fund has yet to be established, the government’s acquisition in August of a 10 per cent equity stake in US chipmaker Intel demonstrates that active state participation in industrial sectors of strategic importance to national security is part of an increasingly clear and focused strategy.
The commerce secretary Howard Lutnick said at the end of September that the administration’s aim is to “get chip manufacturing significantly onshored”. And on Monday, the government announced it would take a 10 per cent stake in Canadian mining company Trilogy Metals in a bid, as the secretary of the interior Doug Burgum put it, to secure the supply of critical minerals.
The Trump administration’s equity-for-grants deal with Intel did three things, each of which sheds light on America’s evolving industrial strategy.
First, it sent a market signal that the US is committed to Intel’s long-term prospects. The company is the country’s best chance to compete with Taiwan Semiconductor Manufacturing Company and Korea’s Samsung in chip fabrication.
Second, the stake was a “poison pill” to dissuade the company from fully exiting the manufacturing sector. TSMC is the dominant player in chip manufacturing, especially advanced artificial intelligence chips, so Wall Street may advise Intel to focus on chip design instead. But Intel pulling out of manufacturing would be detrimental to the government’s efforts to shore up domestic chip making for reasons of supply-chain stability.
Third, the Intel deal was clearly intended to “crowd in” further public-private partnership. Within days of the US government taking its stake, Japan’s SoftBank announced its own $2bn investment in Intel, followed by Nvidia’s $5bn design and manufacturing partnership with the company.
However, even the $8.9bn of US funding, plus SoftBank’s $2bn, will not fully finance Intel to build up its AI chip manufacturing capacity. It may need to invest $10bn in each of the next five years if it is to succeed at making leading-edge chips.
Intel’s plan to open a new manufacturing facility in Ohio, for example, has been repeatedly delayed, not only because of the company’s financial troubles, but also its lack of AI chip manufacturing orders from the biggest customers.
US government funding alone wouldn’t address all of Intel’s problems, which is why Nvidia’s decision last month to invest $5bn in its struggling rival as part of a deal to develop chips for PCs and data centres is so significant. This partnership not only provides Intel with a critical revenue pipeline but also creates a demonstration effect: if the world’s dominant AI chip designer entrusts Intel with responsibility for manufacturing, it could catalyse further private market capital to invest in a company seen as vital to US technological sovereignty.
Will the US approach succeed? It’s worth comparing these recent ad hoc efforts to boost chip manufacturing in America with China’s National Integrated Circuit Industry Investment Fund, which demonstrates Beijing’s ambition to build a competitive domestic foundry ecosystem. After significant investment by NICIIF in Shanghai-based Semiconductor Manufacturing International Corporation, the company now makes advanced AI chips for Huawei, and is striving to catch up with TSMC as well.
Both the US and China have decided that they can’t afford to outsource their chipmaking future. Technological sovereignty is their common destination, and they are resorting to the same kind of strategy, albeit with their own distinctive characteristics, to get there.
