Economy & Business

The Tech Merger Trump Blocked Was Not a Threat to ‘National Security’

(Yves Herman/Reuters)
If foreign investment in the U.S. is arbitrarily blocked through executive order, half the purpose of corporate-tax reform is defeated.

On Monday, President Trump issued an executive order to block Singapore-based Broadcom’s takeover of Qualcomm before the two companies had even made a deal. In the order, the president says that “there is credible evidence that leads me to believe that Broadcom Limited . . . might take action that threatens to impair the national security of the United States.” The move seems to have worked, given that Broadcom withdrew and terminated its $117 billion bid on Wednesday morning. What this evidence entails is highly unclear.

Broadcom and Qualcomm are major players in the mobile-technology space. The two companies produce much of the silicon that powers laptops, phones, and tablets. Despite Broadcom’s Singapore corporate headquarters, it is largely an American company and started as a division of Hewlett-Packard in the 1960s. The company plans to move its headquarters to the U.S. next month, quite possibly as a result of corporate-tax reform. In fact, Broadcom’s CEO announced the move at the White House this past autumn, standing beside President Trump as he did so.

This is the latest in a long line of trade restrictions that the administration has taken in the name of national security. Each has been fast-tracked unilaterally by means of Cold War–era statutes, including the recent steel and aluminum taxes. The Trump administration has been quietly blocking international business deals via a Treasury Department panel, the Committee on Foreign Investment in the United States (CFIUS), that is chaired by Steven Mnuchin. In the case of Broadcom, the president chose the much more visible route of issuing an executive order as well. Why did this call for such visibility? Trump will be in San Diego next week; it is entirely possible that he wants to claim “victory” at Qualcomm’s offices.

Many have argued that the block allows Qualcomm to remain ahead of China’s Huawei as the market leader in 5G technology; indeed, even the Wall Street Journal endorses the Trump executive order on those grounds, despite its stance against the steel and aluminum tariffs. The Journal editors argue that a Broadcom merger would have meant that Qualcomm’s 5G technology effectively ceased, because Broadcom is in the habit of deprioritizing spending on research and development. That claim does not hold up to scrutiny. Qualcomm is currently the market leader in 5G technology, which “is a core piece of the franchise Broadcom is trying to purchase,” according to an analyst with Bernstein Research before the deal was blocked, and 5G expansion was the stated reason for Broadcom’s interest in the merger. Furthermore, Qualcomm has incurred costly fines and lawsuits that are likely to take a toll on the company and that Broadcom’s cash influx would help pay for.

Trump’s most prominent Senate ally on trade, Senator Chuck Schumer (D., N.Y.), while praising the executive order on the Senate floor, laid out the other argument, “that China has been rapacious about trade and very smart. They look for places where they can steal our best technology.” That argument is based on the fact that Broadcom works with Chinese companies . . . but so does Qualcomm. In fact, so do just about all tech companies. Perhaps Schumer and Trump believe Singapore to be part of China, but it is no more so than Geneva is part of France. (Even if the company were not mostly American, which it is, Singapore is a staunch ally anyway.)

There are fears that the continual denials issued by CFIUS will lead to a chilling effect on international investment. With the expectation that approval for mergers and acquisitions will be denied by Washington, foreign companies may simply decide against the uncertainty of making investments in the U.S., and other countries could retaliate by erecting regulatory barriers against American firms.

The Broadcom-Qualcomm merger would have been the largest in tech history. It was likely to run into antitrust issues, especially given that the two companies between them produce most smartphone components. The deal might have been stopped in its tracks by antitrust regulators, but in that case at least the reasons would have been transparent.

Such abuse of executive authority cheapens appeals to national security and advances Congress’s abdication of its own authority.

It is dangerous that national-security authority is invoked to justify any measure to stop something that the president does not like. Abuse of that authority cheapens appeals to national security and advances Congress’s abdication of authority by encouraging unilateral decision-making from the executive branch. It seems likely to me that the order is driven by Trump’s “Trade wars are good, and easy to win” instincts, dressed up in the rhetoric of national security for easy implementation and buy-in from the ideologically unmoored. What’s more, Trump is not alone. Senators John Cornyn (R., Texas) and Dianne Feinstein (D., Calif) want to expand CFIUS’s authority to block investments, in the name of “modernization.”

Trump and the GOP talked up the ways in which corporate tax reform would open up the U.S. to greater investment, and they had a point. But if the flip side is that foreign investment is to be arbitrarily blocked, even when it amounts to hundreds of billions, what good do the tax changes do?