Government Equity Stakes Require Institutional Rigor, Not Political Patronage

For much of modern American economic history, the federal government deliberately avoided acting as a corporate investor. While Washington regulates, taxes, procures from, lends to, and subsidizes businesses, direct equity ownership has typically been confined to development finance, crisis interventions, and other extraordinary circumstances.

That boundary is rapidly eroding. Since January 2025, the U.S. government has committed $27.7 billion across 39 transactions involving direct ownership or equity-like stakes, according to the Council on Foreign Relations’ U.S. Government Deal Trackers. These investments span critical minerals, semiconductors, manufacturing, infrastructure, and other strategic sectors.

The rationale is straightforward. Economic security and national security increasingly overlap, and China dominates critical-mineral processing and other strategic supply chains. Governments worldwide are deploying subsidies, state-owned enterprises, export restrictions, and other interventions to secure industrial advantage. In this environment, there are circumstances in which U.S. government capital, deployed alongside private investors, can unlock strategically important projects.

Yet not every strategic challenge requires the federal government to hold equity. Government is poorly equipped to function as a conventional investment manager, and public capital should not displace private investment where markets can reasonably deliver comparable outcomes.

If Washington is going to assume equity risk, the justification must be clear, exceptional, and subject to consistent rules.

Any government equity stake should follow a disciplined assessment of whether alternative mechanisms—such as loans, guarantees, offtake agreements, procurement contracts, or conventional subsidies—could achieve the objective more effectively. If government capital is deemed necessary to bridge a gap where private returns are insufficient, the intervention demands rigorous due diligence on company selection and valuation, alongside a clear understanding of the strategic benefit to the government.

Crucially, the government must establish a clear exit strategy for itself, addressing what happens when private capital becomes willing and able to take over. Such rigor in planning the eventual off-ramp is especially important where Washington simultaneously acts as shareholder, regulator, customer, or policymaker.

Recent critical-minerals deals illustrate how quickly boundaries are shifting. The Pentagon’s $400 million investment in MP Materials combined equity with loans, price support, and an offtake agreement, while the Department of Energy took warrants in Lithium Americas and its Thacker Pass joint venture as part of a restructuring intended to reduce taxpayer risk. Equity is becoming another tool of U.S. industrial policy, often layered atop other forms of public support. That makes rigorous investment and governance standards more important, not less.

The issue becomes particularly acute when Washington invests in foreign companies, in some cases repeatedly. If the federal government is going to invest taxpayer money abroad, it should establish governance expectations comparable to those it would apply when investing in an American public company. That means appropriate independent oversight, credible audit arrangements, scrutiny of related-party transactions, protections against inappropriate dilution, transparent financial reporting, and meaningful remedies when agreed governance standards are breached.

This does not mean that American investment should automatically subject a foreign company to the full reach of U.S. corporate or securities law. Different jurisdictions have different corporate structures, and credible governance systems need not be American per se. But American public investment should carry credible investor protections, just as any sophisticated institutional investor would expect before committing substantial capital.

Washington already negotiates such protections in some deals. When it invested in Canada-based Trilogy Metals, the U.S. government secured the right to designate an independent third-party director and, subject to its continuing shareholding, a non-voting board observer. It also obtained a consent right over certain very large increases in indebtedness.

The question is why such protections should be reinvented transaction by transaction. As federal equity investment becomes more common, agencies should establish a baseline set of governance principles for investments in foreign companies. Those principles should be adaptable to the circumstances of a transaction rather than mechanically exporting U.S. securities regulation overseas. But at minimum, federal equity investments in foreign companies should carry a baseline set of governance protections covering independent board and audit oversight, related-party transactions, dilution, disclosure, and the government’s rights when governance standards deteriorate.

Robust protections are better for taxpayers, but also fairer to American companies. A U.S. company raising capital on an American exchange operates within a demanding framework of disclosure, audit, and corporate-governance requirements. It would be an odd form of industrial policy if a foreign competitor could receive preferential U.S. taxpayer capital while facing materially weaker safeguards over how that capital and the company itself are governed.

Clear rules also benefit the recipients of government investment by reducing uncertainty. They make it easier for companies to understand what accepting federal capital entails and harder for individual transactions to become exercises in political bargaining.

More importantly, they could make strategic industrial policy more durable. An investment whose purpose, valuation, and protections are transparent is easier to defend to Congress, auditors, future administrations, and taxpayers. One negotiated hurriedly behind closed doors is easier for a subsequent administration to characterize as favoritism and unwind.

There is a danger in allowing the debate over governance to obscure the more fundamental question of when the U.S. government should own companies at all. The test should be whether government ownership solves a specific problem that less intrusive instruments cannot, and whether the prospective public return adequately compensates taxpayers for the additional risk.

The Trump administration has clearly rediscovered equity as an instrument of economic statecraft, and the U.S. government is already a shareholder in companies beyond its borders. The practical challenge is therefore to make it a more disciplined one. That starts with due diligence before the investment, clarity about what public ownership is supposed to achieve, transparent criteria for choosing recipients, a credible route eventually to exit, and governance protections appropriate to the risks taxpayers are being asked to bear.

Washington should not behave like a political patron dispensing capital to favored companies. Nor should it be a passive shareholder willing to accept protections that a sophisticated private investor would reject. If the U.S. government is going to invest like an institutional investor, it should govern its investments like one too.

Phillip Cornell is managing director of ASIO Energy LTD, senior energy advisor at The Economist, and a senior fellow at the Atlantic Council. He was previously senior advisor to the chairman and CEO of Saudi Aramco and to the head of the International Energy Agency.

Stephen Rodriguez is a defense investor at DCVC. He is also founder of One Defense and a senior advisor at the Atlantic Council.

Source link