Trump’s Deals With Companies Aren’t Un-American. That’s the Problem
The president’s wheeling and dealing with the likes of Intel and Nvidia echoes the bad old days for stock investors
By Jason Zweig
Illustration: Alex NabaumIs the U.S. turning into China?
Under President Trump, the U.S. government has become a minority owner of Intel and will take a cut of Nvidia’s and Advanced Micro Devices’ sales of artificial-intelligence chips to China.
Trump said this might be just the beginning: “I want to try and get as much as I can,” he said this week after the Intel deal.
“I hope I’m going to have many more cases like it.”
This might sound like Chinese-style state capitalism, not classic U.S. free enterprise.
However, government investment in companies isn’t un-American or unprecedented.
It’s as American as apple pie and was a common procedure in the 19th century.
Unfortunately, history suggests the likely results will be massive misallocation of capital and a surge in waste, corruption and conflicts of interest.
For centuries, government has been the ultimate buy-high-sell-low investor, and that doesn’t bode well for anybody’s stock returns.
Consider the Intel deal.
“I said, ‘I think you should pay us 10% of the company,’ and they said yes,” Trump said earlier this month.
An Intel corporate disclosure was more somber.
“The issuance of shares of common stock to the U.S. government at a discount to the current market price is dilutive to existing stockholders,” the company warned.
Investors “may suffer significant additional dilution” if the terms of the agreement aren’t met and the government ends up increasing its stake.
In plain English, Intel’s individual and institutional investors just had their share of the company’s future earnings slashed by the U.S. government—even though they had no say in the new arrangement.
Also in recent weeks, the Trump administration has said it intends to take 15% of Nvidia’s and AMD’s revenues from AI chips sold to China and will invest billions of dollars for a roughly 15% equity stake in MP Materials, a maker of rare-earth magnets.
Defense contractors could be the next additions to Uncle Sam’s burgeoning investment portfolio.
None of this is exactly new.
In the 1820s, states competed furiously to fund banks, canals and railroads.
During the brief boom, dividends of stocks they’d invested in were one of the biggest sources of revenue for many states.
After the bust, eight states plus the territory of Florida defaulted on their bonds.
In 1844, Pennsylvania began trying to unload its stock in local railroads. Fourteen years later, it had gleaned total proceeds of $11 million on its more than $75 million of investments. That loss is probably equivalent to something like $40 billion today.
After the states got burned, the federal government stepped in.
On July 4, 1828, President John Quincy Adams scooped out the first shovelful of the Chesapeake and Ohio Canal.
The U.S. government was the largest shareholder, with a $1 million investment, roughly equivalent to $1.2 billion today.
Other than a flicker of prosperity in the 1870s, the canal “never paid any return,” a later historian concluded.
The U.S. bought it out of receivership in 1938 for approximately $2 million.
Between 1850 and 1871, the federal government gave away more than 6% of the total landmass of the contiguous U.S. as land grants to major railroads.
The U.S. also provided approximately $60 million in bond financing, probably equivalent to $20 billion today.
The railroads rushed to sell their land grants at rapidly escalating prices.
Much of the proceeds ended up in the hands of self-dealing insiders and their Congressional cronies.
The Union Pacific established a company to lay its transcontinental track at deliberately inflated cost.
The excess cash funded kickbacks and secret transfers of shares to members of Congress, who obligingly ignored the cost overruns.
Many investors think that stock returns were at least as high in the 19th century, when the U.S. was an emerging market, as they’ve been in recent decades.
In fact, stocks earned an annualized rate of return before inflation of less than 6% in the 19th century.
That’s far lower than in modern times.
It would be naive to say that stock investors earned lower returns in the old days solely because Uncle Sam mucked up the markets.
It would be just as naive to think that fraud, waste, corruption and conflicts of interest didn’t play any part in reducing returns.
“Why, in 2025,” asks historian Brian Murphy of Rutgers University, “are we reviving economic practices that we largely abandoned in the 19th century because they were too corrupt for a ‘modern’ nation?”
The U.S. sporadically financed private companies in more recent decades, attempting to salvage Penn Central in the 1970s, rescuing Chrysler a few years later and several banks (as well as General Motors and, again, Chrysler) in the 2008-09 financial crisis.
But those interventions were all situational, responding to perceived emergencies, rather than a sweeping policy that might include “many more cases,” as Trump has implied.
“President Trump pledged to put America First and Make America Wealthy And Strong Again,” White House spokesman Kush Desai said in a statement, “and he is committed to using every lever of executive power to deliver on this pledge to the American people.”
Investors had better hope that Trump pulls those levers rarely and temporarily.
If Uncle Sam becomes the funder of first and last resort, it won’t be good for anyone except the middlemen.
0 comments:
Publicar un comentario