What America Stands To Lose With Latest Blocked Deal Between Qualcomm And Singapore’s Broadcom


Source: Forbes Technology

Signage is displayed outside of Broadcom Ltd. headquarters in Irvine, California, U.S., on Monday, Nov. 6, 2017. Photographer: Patrick T. Fallon/Bloomberg

The Committee on Foreign Investment in the United States (CFIUS) has blocked Singapore chipmaker Broadcom’s $140 billion cash-and-shares hostile bid to take over its American rival Qualcomm. Chaired by Treasury Secretary Steve Mnuchin, CFIUS is an interagency committee that reviews foreign takeovers of U.S. companies. The executive order giving force to the CFIUS decision concluded that the proposed deal “threatens to impair the national security of the United States.”

Just how a Singaporean takeover of an American company impairs the national security of the United States was not spelled out. Singapore is an important U.S. economic and security partner. It is home to a major U.S. Navy logistics center and regularly hosts U.S. land, air and naval forces. Though Singapore is not technically a U.S. treaty ally, the security relationship between the U.S. and Singapore is about as close as you can get without an alliance.

Still, Broadcom was taking no chances. Anticipating CFIUS resistance, Broadcom was actually in the process of moving its headquarters back to the United States. Broadcom was founded by UCLA academics in southern California in 1991. It only became a Singaporean company in 2016, after it was purchased by Singapore-based Avago Technologies, which has since taken on the Broadcom name. Broadcom pulled out all the stops to secure a positive CFIUS ruling, praising Trump’s tax bill at the White House and promising to inject an additional $1.5 billion into U.S. research and development.

US President Donald Trump jokes with Broadcom CEO Hock Tan as he announces that Broadcom woud be moving back to the US in the Oval Office at the White House in Washington, DC, on November 2, 2017. (NICHOLAS KAMM/AFP/Getty Images)

To no avail. Not only did CFIUS find against Broadcom, but President Trump’s rejection of the deal was particularly expansive, ordering that Broadcom “shall immediately and permanently abandon the proposed takeover.” Barring a miracle, the deal is dead.

It is not at all clear why CFIUS is so alarmed. Qualcomm management fiercely opposed the deal, but that’s no surprise. A hostile takeover can overturn years of hard work–and put highly-paid executives out of a job. Anyway, CFIUS is neither a jobs body nor even a competition authority. It is a security committee.

The last high-profile CFIUS ruling, the rejection of Alibaba’s $1.2 billion friendly bid for payments provider Moneygram, made complete national security sense: letting a Communist Party-linked Chinese company take control of a chunk of American payments infrastructure, even a small one, would certainly have been risky. But Broadcom is Singaporean, not Chinese, and very American in culture. Most of its executives are either American or at least American-educated. Unless CFIUS has access to intelligence that the rest of us lack, there seems no reason to be suspicious of Broadcom.

More on Forbes: Do ‘National Security’ Threats Signal The Beginning Of The End For U.S.-China Trade Relations?

Qualcomm logo, at Qualcomm pavilion, during theMobile World Congress day 3, on February 28, 2018 in Barcelona, Spain. (Photo by Joan Cros/NurPhoto via Getty Images)

Unfortunately, national security decisions like the CFIUS ruling are always opaque, and all we can do is speculate as to the real reasons behind them. Qualcomm is indeed a systemically important telecommunications company. But beyond a vague commitment to keeping American great, it’s not clear why an American mobile phone chipmaker can’t have strong Singaporean ties (wherever it is technically domiciled). In today’s globalized economy, there are two ways to make sure a company doesn’t threaten U.S. national security: make sure it has substantial assets in the United States, and make sure a lot of the people running it are loyal to the United States. Broadcom checks both boxes.

China uses security policy to develop its industrial base, most famously with the Great Firewall of China that excludes many American internet companies from competing in the Chinese market. With its strategic steel and aluminum tariffs and aggressive CFIUS rulings, the Trump administration seems determined to do something similar in the United States. But excluding Broadcom won’t necessarily protect America’s technological leadership.

The injection of some Singaporean know-how might actually have been good for Silicon Valley. Instead Singaporeans might learn the unintentional lesson that they’re not welcome in America. China has actively courted Singaporean knowledge and advice since the 1980s. It would be a shame if the U.S. put up a wall just as the Chinese are learning that it’s past time to tear theirs down.

Read more: The Problem With U.S. Tariffs On Steel And Aluminum That No One Is Talking About

Salvatore Babones is the author of American Tianxia: Chinese Money, American Power, and the End of History. He also hosts Midnight in America Friday nights on YouTube. Follow him on Twitter @sbabones.

Source: Forbes Technology