Epistemica

The inflation crisis of 2021 and 2022 was pervasive in the U.S. It was caused primarily by precipitating factors that emerged in 2020. The massive increase to the money from Trump’s 2020 PPP-driven bill, consumer demand finally returning after the peak of the pandemic, and an extremely damaged supply chain meant surging prices. During Trump’s final year in office, the pandemic response helped drive a historic spike in M2, a broad measure of money that includes cash, checking deposits, savings deposits, and other liquid balances. M2 rose from about $15.35 trillion in December 2019 to about $19.12 trillion in December 2020, and then to about $21.50 trillion by December 2021. Meanwhile, consumer inflation reached 9.1 percent in June 2022, the largest 12-month CPI increase since 1981.

When a massive amount of money is chasing goods and services, prices rise if the economy cannot produce enough real output to meet demand. In normal times, extra money might support more production. But in 2021, output was constrained. Factories were closed or backlogged, ports were jammed, labor markets were scrambled, and global production networks were brittle. The San Francisco Fed later found that supply factors explained about half of the inflation run-up, while demand explained about a third; another San Francisco Fed analysis found that global supply-chain pressures contributed substantially to the inflation surge from early 2021 onward.

Semiconductors were the most revealing failure. The U.S. had allowed itself to become dangerously dependent on foreign chip supply chains, including China-centered electronics ecosystems and increasingly China’s mature-node chip capacity. Taiwan dominates much leading-edge logic, South Korea is central to memory, and China has become increasingly important in mature, foundational chips and downstream electronics supply chains. The U.S. had become dependent on a fragile overseas supply chain for components that power cars, trucks, medical devices, consumer electronics, data centers, infrastructure, and military systems.

The auto market proved the macroeconomic choke point. The Commerce Department reported in early 2022 that median inventories of hard-to-get chips had collapsed from about 40 days in 2019 to fewer than five days in 2021, and warned that even a two- or three-week overseas disruption could shut down American facilities and furlough workers. The Cleveland Fed found that semiconductor shortages constrained vehicle production, depleted inventories, and helped push prices upward. The Chicago Fed likewise noted that car buyers faced low inventories, long waits, and rising prices largely because of lingering supply disruptions, with semiconductors as the main culprit.

Biden had a plan though. The CHIPS Act was intended to bolster supply chain resilience, which could curb or even prevent an inflation spike fueled by supply chain deficiencies and bottlenecks. The Act gave the Commerce Department roughly $50 billion to strengthen American semiconductor manufacturing, research, development, and workforce capacity, including about $39 billion for manufacturing incentives and $11 billion for research and development. It would move critical production back into the United States, or at least into more reliable and diversified supply chains, so the next shock would not turn into another national price spiral.

Intel was the centerpiece of that strategy. Under the Biden administration’s final CHIPS award, Intel was set to receive up to $7.865 billion in direct funding to support commercial semiconductor projects in Arizona, New Mexico, Ohio, and Oregon. The Commerce Department said the award supported Intel’s expected nearly $90 billion in U.S. investment by the end of the decade, as part of a broader plan exceeding $100 billion. The funding was tied to project milestones, which was structured so that taxpayers would financially facilitate the expansion, but the company must actually build the capacity, employ the workers, and strengthen the supply chain. Under CHIPS, the investment had to spent on actual efforts to strengthen the semiconductor supply chain.

But Trump undid it.

In August 2025, the Trump administration announced that the U.S. government would take a 9.9% stake in Intel by converting previously awarded federal support into equity. Intel said the deal involved an $8.9 billion government investment in common stock, funded by $5.7 billion in previously awarded but unpaid CHIPS Act grants and $3.2 billion from the Secure Enclave program. The government bought 433.3 million Intel shares at $20.47 per share. The stake was passive: no board seat, no governance rights, no information rights, and votes generally cast with Intel’s board. Intel also said earlier claw-back and profit-sharing provisions tied to prior CHIPS funding were eliminated.

The CHIPS money was supposed to buy fabs, capacity, redundancy, skilled jobs, and national resilience, but Trump converted it into Intel stock, meaning that there are no longer guarantees that the supply chain will be any stronger despite the massive investment into Intel.

Owning a slice of Intel does not guarantee that chips will be available when a war, pandemic, cyberattack, earthquake, export control fight, or shipping crisis interrupts global supply. A family cannot drive a Treasury portfolio gain to work. A small business cannot put an equity stake into a delivery van. A factory cannot solder a government-held share certificate onto a circuit board. And, of course, there’s the possibility that people in the Trump administration or close to those in the administration knew about the deal before it was announced and insider traded into a boon.

In economics, a real option is the value of having the ability to act under uncertainty. Domestic chip capacity is a real option in that it may look expensive when global trade is smooth, but it becomes priceless when foreign supply breaks. Redundant fabs, stockpiles, trained workers, and trusted packaging capacity serve as a kind of insurance. They reduce the risk of catastrophic shortage. Trump’s Intel deal shifted away from buying that insurance and toward owning a passive financial asset.

Even worse, Reuters reported that Intel’s amended agreement removed earlier project milestones and allowed the company to receive about $5.7 billion sooner than originally planned, giving Intel more flexibility which is good for the company but likely redirects the investment away from improving supply chains. Some guardrails remained, including restrictions on using funds for dividends and buybacks, but the basic architecture changed. Under the original logic, public money was conditional. Intel would build before being paid. Under Trump’s Bad Deal for America, public money became part bailout, part stock purchase, part political trophy, thus creating a classic principal-agent problem. The principals are the American people. The agent is Intel. Taxpayers want secure chip supply, domestic production, technological leadership, and resilience against China-centered or East Asia-centered disruptions. Intel wants flexibility, cash, higher valuation, and corporate survival. There is nothing shocking about Intel pursuing Intel’s interests. That is what corporations do. The job of government is to write contracts that align Intel’s incentives with the public interest. Milestones, clawbacks, labor commitments, production targets, and enforceable guardrails do that. A passive equity stake does not. What an absolute disaster that is being heavily underreported in the American media.

The deal also risks creating a soft budget constraint, which is when a firm expects rescue because it is too important to fail. Once the government becomes a shareholder in a strategically important company, political incentives get muddy. Will future administrations discipline Intel if it misses targets? Will regulators be tougher or softer on a company taxpayers partly own? Will Intel’s rivals see the market as fair? Will foreign governments treat Intel as a private supplier or an arm of U.S. policy? Intel itself warned the U.S. stake could create risks for international sales, foreign subsidies, and future government grants.

China is pouring state-backed money into foundational semiconductors, the mature chips used in automobiles, power systems, industrial equipment, defense platforms, and everyday electronics. A U.S.-China Economic and Security Review Commission analysis found that China’s share of foundational chip production capacity rose from 19 percent in 2015 to 33 percent in 2023, and projected that China could account for about half of new mature-node capacity in the next several years.

As Trump continues to pursue a ballroom, an arch, and plastering his image on official documents, his Intel deal royally screws over Americans.