Trump Was Right to Block a Merger

Trump Was Right to Block a Merger

President Trump’s decision to block a foreign company’s proposed takeover of Qualcomm, which makes chips for smartphones and other devices, before the deal had even been signed, was extraordinary. It was also the right move, given the series of mergers that has left the semiconductor industry already dominated by a few large companies.

Singapore-based Broadcom was trying to acquire Qualcomm, headquartered in San Diego, for $117 billion — which would have made it the largest technology deal in history — in a hostile takeover. Mr. Trump pre-emptively blocked the purchase on Monday, citing national security concerns. While the president did not provide a detailed rationale, a March 5 letter from the Treasury Department calling for a review of the deal said that the administration was concerned about Broadcom’s relationships with other foreign companies.


Simon Dawson/Bloomberg

The letter strongly hinted that those companies of interest are based in China. It also noted that Broadcom has reduced spending on research and development at the businesses it acquires, a practice that could make Qualcomm less innovative. That, in turn, would give Chinese businesses a leg up in the race to develop the technology for the next generation of cellphones, known as 5G, which is expected to provide faster internet access and generate billions of dollars in profits for the wireless industry in the coming years.

Seen against the backdrop of the president’s protectionist statements and policies, this decision is unnerving. He recently used another national security law to announce tariffs on steel and aluminum imports, arguing that he was seeking to force China to reduce excess production of those metals. In reality those tariffs will not hurt China much, landing a heavier blow on American allies like the European Union, Brazil and South Korea and possibly starting a wider trade war as other countries retaliate against the United States.

That is why some experts fear that by blocking the Broadcom-Qualcomm deal, Mr. Trump could further rattle the global economy and international norms. Other countries might now feel emboldened to block as a security threat inbound foreign investment that they consider significant, justifiably or not. France and other countries have a history of protecting companies they consider “national champions,” but the United States has been reluctant to do so. The Committee on Foreign Investment in the United States, which is made up of representatives from across the executive branch, looks at acquisitions that could represent a national security problem, but its reviews typically end up scuttling only a few deals annually, though the number has increased in recent years.

Because the committee does most of its work in secret, it is hard to know if it is making the right calls. But in this case, the ultimate outcome was correct because the potential takeover raised serious antitrust concerns.

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