Trump's protectionist stance has its dangers for US businesses
For the second time in barely a fortnight, Donald Trump has cited “national security” to justify a significant decision affecting business.
Two weeks ago, that was the reason for slapping tariffs on US steel and aluminium imports.
This raised eyebrows because flagging national security concerns allows the US to avoid punishment under World Trade Organisation (WTO) rules for what most regard as a protectionist measure.
It has been seen as exploiting a loophole that risks undermining the WTO if other countries respond similarly.
Then overnight, Mr Trump cited national security in choosing to block Singapore-based chipmaker Broadcom’s $117bn takeover bid for US rival Qualcomm, even though a deal had yet to be reached.
The White House argued that Broadcom’s plans for Qualcomm would lead to investment cuts, harming America’s ability to compete in 5G technology with Chinese rivals.
In other words, he was effectively accusing the Singaporean company of acting as a front for the Chinese.
To some, Mr Trump’s action will seem heavy handed, since it was highly unlikely in any case that the takeover would have got past competition regulators in the EU and China.
It was also unlikely to pass muster in Washington because the Committee on Foreign Investment in the United States (CFIUS), a panel formed from various US government agencies that effectively acts as an arbiter of various takeover deals, had already warned the takeover could act against US national security.
That intervention was itself highly significant because CFIUS, a body set up by Gerald Ford in 1975 in response to mounting concerns over Japanese ownership of the US electronics industry, tends not to intervene on a deal before it has even been finalised.
It has been seen by US competition lawyers as an abuse of the committee’s powers.
Rarer still is presidential intervention.
There have only been four previous such moves: George HW Bush’s decision to block the Chinese takeover of an aircraft parts maker in 1990; Barack Obama’s decision to block the construction of a Chinese-owned wind farm near a US air base in 2012; Mr Obama’s decision to block the Chinese takeover of a German chip parts maker in 2016 and Mr Trump’s decision last year to block the Chinese takeover of a US chipmaker.
That decision, last September, also followed a warning from CFIUS that the deal threatened US national security.
Broadcom will be immensely frustrated at Mr Trump’s decision.
Its chief executive, Hock Tan, was welcomed to the White House as recently as November, when he announced plans to redomicile Broadcom in the US.
On that occasion, Mr Trump said Mr Tan, a Malaysian-born US citizen, was “a great, great executive” and described Broadcom as “one of the really great, great companies”.
Ironically, had that redomiciling gone ahead, CFIUS would have found it hard to block the Qualcomm takeover.
Broadcom will not be the only party left disappointed.
This deal, a record for the tech sector, promised to be a vast money-spinner for the Wall Street banks that had lined up more than $106bn (£76bn) worth of funding for it.
The accusation that Broadcom is a front for China, meanwhile, is spurious.
Broadcom was founded in the US by a professor and student from the University of California, Los Angeles and has only been incorporated in Singapore since its 2016 takeover by Avago Technologies, another all-American company that began life as the chips arm of Hewlett-Packard, which happened to be domiciled in Singapore for tax reasons by its previous private equity owners.
The bigger picture here is that Mr Trump’s policy of America First means the US is becoming more protectionist.
Blocking a deal before it has even been agreed is pretty strident.
CFIUS has already blocked a number of takeovers of US corporations since Mr Trump became president and the use by the White House of its report last week, in justifying this decision, suggests it will be used again in the future as part of the President’s policy arsenal.
A cynical interpretation of this decision is that the Trump administration is defending a struggling company already under siege – it faces numerous lawsuits from Apple, its largest customer, as well as from overseas – for abusing its mobile patents to kill competition.
The danger is that it dissuades foreign companies from investing in America.
And, for Silicon Valley in particular, there may now be the threat of greater sanctions from China in response.
Apple, Microsoft and, indeed, Qualcomm itself are among the many US tech companies deriving increasingly large chunks of their revenues from China.
That may, after Mr Trump’s latest decision, come at a higher cost to them.
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