Trump equity stakes pose these risks to U.S. companies and markets

The Trump administration’s portfolio of equity stakes in U.S. companies has reached a scale that is unprecedented outside economic crisis or wartime.

The administration has taken stakes or has agreements to do so with at least 10 companies, most of which are publicly traded. The government announced its latest investment, USA Rare Earth, at the end of January.

Democrats have also considered taking stakes in U.S. industries in the past. But the Trump administration’s approach carries risks both for the companies involved and for the broader markets in which they operate.

“It is a invisible barrier to startups and new market entrants,” said Scott Lincicome, an international trade lawyer affiliated with Cato Institute. “Why would you ever want to enter a market that you know your chief competitor is backed by the U.S. government?”

Many of the investments are in smaller critical mineral companies, like USA Rare Earth and MP Materials, but they also include big industrial and tech companies such as U.S. Steel and Intel.

Top administration officials like Commerce Secretary Howard Lutnick and Interior Secretary Doug Burgum have argued that the U.S. government is investing in strategic industries to reduce dependence on Tawain in the case of semiconductors and China for critical minerals.

Historically, the U.S. has taken equity stakes in companies in the context of bailouts with the understanding that the investments were temporary and the government would exit its position when the company was financially viable again, said Peter Harrell, who served as the senior director for international economics under President Joe Biden.

President Barack Obama, for example, took a stake in General Motors during the 2008 financial crisis and President Franklin Roosevelt took stakes in the banking sector during the Great Depression.

But the Trump administration appears to be taking open-ended ownership interest that the U.S. government is unlikely to exit, Lincicome said. It sets a precedent that future Democratic presidents could use to invest directly in their favored industries like wind and solar, he said.

“I have yet to see a clear, coherent reason for why equity stakes are needed,” Lincicome said. Federal support that falls short of ownership stakes like loans, government contracts and other awards are widely available, he said.

After the U.S. took its stake in Intel, Lutnick told CNBC that President Donald Trump wants the American taxpayer to benefit when the government gives money to corporations.

But the administration’s approach creates political, legal and business risks for the companies involved, Harrell and Lincicome said. It also raises potential conflict of interest concerns, they said.

CNBC has reached out to the White House for comment.

Political, legal risk

The Trump administration’s approach is a major ideological departure for the Republican Party, which has traditionally championed free market capitalism and excoriated government intervention….