Subsidies to Shares: The Federal Government’s Move Into Equity

Growth in US Semiconductor Manufacturing Will Bring Regional Opportunities and Challenges February 13, 2023 Jordan Boege 

Introduction

The Federal Government is experimenting with a new model of industrial policy: funding paired with federal equity ownership. In sectors from semiconductors to rare earths, Washington has signaled that taxpayer money may come with equity stakes or revenue-sharing rights, not just grants. The Department of Defense’s 15% investment in MP Materials, and reports that Intel may sell a 10% stake to the government, illustrate this new model. While national security is the stated purpose, these deals also raise legal and business considerations.

From Grants to Ownership

For the past several administrations, federal support for industry has taken the form of loans, tax credits, and grants. The Obama Administration championed solar-panel manufacturing, and electric-vehicle tax credits and subsidies, finding similar analogues to Biden-era programs and legislation. The CHIPs and Science Act of 2022 continued this model by providing subsidies to semiconductor companies with conditions aimed at reducing reliance on “countries of concern.”

More recent initiatives, however, prescribe partial ownership stakes in return for government funding. In strategic supply chains, like semiconductors and critical minerals, for example, the government has started taking equity stakes in addition to providing funding. This approach raises a key legal question: Does the federal government have the authority to act as a shareholder, and what limits apply?

The Defense Production Act (DPA) provides a basis for the affirmative, where a rarely used “without regard to” clause allows the Department of Defense to bypass procurement and contracting laws in the name of national security. However, apart from specific emergency defense and economic recovery provisions, Congress has never explicitly authorized federal equity ownership. Critics warn that using vague statutory language to justify ownership could invite legal challenges on separation of powers or improper delegation grounds.

Still, as Lawfare notes, Congress has not explicitly debated or authorized federal equity ownership in private firms. This leaves questions about how courts might interpret the DPA and whether challenges could arise.

Risk for Companies

For businesses, government money is not neutral. Even non-voting stakes create obligations and reputational effects. Domestic investors may hesitate to fund companies with overt and politicized government shareholders, while international partners may see these government ownership stakes as political expressions of the current U.S. administration, which can complicate global perception with respect to sales and partnerships with U.S. companies.

In global markets, perception matters. A firm with government shareholders can quickly be read as an extension of national priorities. That perception alone can introduce new complications; slowing the pace of partnerships, stretching out cross-border negotiations, and subtly reshaping how international clients choose to engage.

These dynamics are most visible in sectors such as semiconductors and critical minerals, where supply chains span continents and competition is both intense and constant. Even a relatively small public stake can have far-reaching effects, influencing how a company communicates with investors, navigates its regulatory environment, and plans for growth over the long term. And if the model proves its worth, it probably will not stay put. Clean-energy firms, biotech companies, and others could follow suit, turning government ownership from an occasional rescue tool into a regular feature of industrial strategy.

Looking Ahead

If government equity proves workable in chips and mining, other sectors could seek similar deals. What begins as national security policy could evolve into a broader model of industrial support. That would mark a significant departure from the customary U.S. reliance on traditional loans and grants.

Equity-linked investments could represent a deeper shift in how the federal government supports critical industries. What began as a targeted strategy for national-security-related sectors would become something broader. Similar to how CHIPS Act incentives have reshaped the semiconductor industry, federal equity stakes could become a standard feature of economic policy.

Individual states are also exploring this approach. In Ohio, lawmakers are considering taking an ownership stake in Intel’s new manufacturing project as part of a wider plan to strengthen the state’s economic base. Such inquiries signal a growing recognition that public involvement in private enterprise may become more coordinated, and more common, at every level of government.

Conclusion

The government’s turn toward equity stakes indicates more than just a new funding mechanism; it reflects a deeper shift in how Washington engages with industries it considers strategically essential. The goal is straightforward: shore up supply chains, cut reliance on foreign suppliers, and build capacity at home for sectors too important to leave exposed. It is also about something bigger, protecting the technologies that underpin future growth and preserving the competitive base of the U.S. economy.

But with this new approach come questions that do not yet have clear answers. Do existing statutes actually give the federal government the authority to take ownership in private companies, or will that power need to be more clearly defined?

Answers will emerge over time. The full scope of this approach is still evolving, but its trajectory will likely shape how public and private sectors collaborate and how companies position themselves within an increasingly complex industrial landscape.

*The views expressed in this article do not represent the views of Santa Clara University.