The Government Should Not Try to Profit From Chip Factories
Former CHIPS chief Mike Schmidt says equity makes sense only where private capital will not go.
The Lawfare Podcast · Lawfare Daily: Mike Schmidt Talks CHIPS and U.S. Industrial PolicyMike Schmidt, the former director of the Commerce Department office that turned the 2022 CHIPS Act into factory deals, was asked by Peter Harrell when Washington should take ownership stakes in companies instead of just giving them grants. Schmidt said the choice should turn on what the market cannot do on its own.
“The core objective of industrial policy shouldn’t be making money,” Schmidt said. Schmidt added that “sometimes a profit objective will run counter to the national security objective.”
Schmidt said he is pretty supportive of keeping equity in the toolkit, and he argued “the toolkit should be very broad” because the right intervention changes from company to company and industry to industry. Having the tool, in his view, is separate from when to deploy it.
His test, as he put it, is to ask what problem the market is not solving. Big chipmakers are large and creditworthy, and their shareholders want the most profitable plants, so he said grants and tax credits that offset the higher cost of building in the United States fit that problem. He argued that credit tools matter more for businesses where access to capital is the real barrier.
For that reason, Schmidt said he struggles to see the case for equity in more mature companies “that can raise equity on their own.” The exception he offered fits his test. He described an early stage company with technology critical to national security or the industrial base that was struggling to raise money from traditional venture firms, and he said that's “a case where government equity could make ... a lot of sense.”
The debate sharpened in 2025, when the government took a stake in Intel by converting CHIPS grants into equity and officials cited the profit when Intel shares rose. Schmidt countered that the government has other ways of making money, and that every intervention carries costs, some in taxpayer dollars and some in policy complications. If a project is profitable on its own, he asked, what is the government doing there, because the market could probably do it anyway.
Questions people ask
What did CHIPS give companies besides equity?
The core offer was a 25 percent investment tax credit that was refundable, meaning it paid cash even to firms owing little tax, plus grants sized to close the cost gap with Taiwan, South Korea, and Japan. Loans were also authorized, but Schmidt says they mattered little because large chipmakers could already borrow cheaply.
Why subsidize chipmakers at all if they are profitable?
They can be profitable building overseas while losing money building in America, because construction, labor, and operating costs are higher. The subsidy is meant to offset that U.S. premium to gain secure supply, not to rescue a failing business.
What downsides does Schmidt see in government equity?
He points to policy complications that go beyond budget cost, including political interference in business decisions and conflicts when the government is both regulator and owner. Those risks are why he argues equity should be reserved for cases where private financing is unavailable.