Technology and protectionism: Trump blocks the acquisition of Qualcomm
Donald Trump has issued a presidential executive order blocking what would have been the most important technological acquisition ever, an operation that has been gestating for almost three years and that illustrates the consolidation process underway in the semiconductor industry: the acquisition of US player Qualcomm by Broadcom, itself the object of a takeover by Singapore’s Avago in May 2015.
Broadcom kept its name, but its headquarters moved to Singapore. Which is why, despite the enthusiastic support of Donald Trump’s fiscal policies of its Malaysian CEO, MIT and Harvard educated Hock Tan, along with guarantees to return the company’s headquarters to the United States, the White House, acting on the recommendation of the Committee for Foreign Investment in the United States (CFIUS), has decided to block the acquisition even before it was announced.
This corporate battle is about who controls 5G technology: the fears of CFIUS and the US Treasury Department are based on Broadcom’s heavy dependence on leverage to obtain funds for the acquisition, which they say could reduce its ability to continue investing in Qualcomm, which would give Huawei, the company with the most patents in 5G, the opportunity to establish an even bigger lead in a technology the US government considers strategic. Broadcom’s stated commitment to increase investment in Qualcomm has done little to appease the US government, which considers Hock Tan’s desire to consolidate as speculative, while Qualcomm’s position as a supplier to the US armed forces merely made matters more complex.
Some pundits has speculated that Broadcom might have pulled off the operation if it had first moved its headquarters to the United States before announcing the acquisition, which would have placed the process out of CFIUS’s reach by converting it into a consolidation among US companies. Other sources have caused consternation in the technology sector by spreading rumors that the Trump administration wants to extend the CFIUS’s authority to supervise not only acquisitions, but minority stakes by Chinese capital in the financing rounds of US companies, which could shut off the tap of Chinese money that has been flowing into Silicon Valley, depriving it of an important source of resources and dynamism.
This is not the first time Trump has intervened to stop Chinese companies buying into US chipmakers or signing deals with US operators, albeit on a smaller scale. In general, attempts to protect the US technology industry by the current administration are part of a broader protectionist strategy, which includes the recently announced tariffs on steel imports: the focus on chips and data transmission networks highlights just how important these technologies have become from an economic and military point of view.
The problem with technology is that it is much more complex than say, steel: blocking the acquisition of Qualcomm does not guarantee its ability to outperform foreign players, and intervening in the process of consolidation in the semiconductor sector could well backfire. If Broadcom now sets its sights on other, non-US competitors and continue to grow, Trump’s efforts to hold onto a US supplier for its 5G networks could mean less competitive networks, resulting in a burden for the economy: protectionism, whether in technology or other areas, rarely works in the medium and long term, and most produces negative impacts. The de facto conversion of Qualcomm into its preferred supplier of 5G technology simply because it is American, rather than the best available technology does not seem the best way to guarantee the United States the kind of competitive infrastructure it needs.
(En español, aquí)
