US President Donald Trump on Tuesday blocked a proposed deal for Singapore-based Broadcom to acquire US telecoms equipment maker Qualcomm. The move was striking for a number of reasons, including the fact that the entities had yet to agree to a deal in the first place, and that Broadcom was in the process of relocating its headquarters to the United States.
Such an agressive action to block an acquisition was unprecedented, as deals are usually reviewed later in the process if national security concerns arise. This particular case underscores just how worried the United States is about Chinese telecoms giant Huawei.
Some analysts credited the move to block the takeover with dragging the tech sector down in trading on Tuesday. The S&P 500 technology sector shed more than 1%.
On the mysterious Huawei connection, from Bloomberg:
What role did Huawei have in the Broadcom/Qualcomm deal?
None. Huawei — never an aggressive acquirer — had no direct role in the deal negotiations. But it loomed over the talks because of its growing influence.
So why the worry about Huawei?
CFIUS is concerned that Broadcom would cut back on R&D funding at Qualcomm, strengthening Huawei at a time when rivals from Ericsson to Nokia are grappling with weak telecoms spending. That theoretically gives Chinese companies such as Huawei and closest rival ZTE Corp. the upper hand in steering the direction of wireless communications development, thereby — so the argument goes — jeopardizing U.S. national security. CFIUS’s concerns over the deal are said also to stem from Broadcom’s ties to Huawei, which was blacklisted in 2012 along with ZTE when the U.S. House Intelligence Committee cited security risks posed by the companies.
The Broadcom-Qualcomm deal wasn’t even a Chinese takeover, but attracted intense scrutiny from Washington out of a fear of China’s rising influence in the tech sector. Chinese automaker Geely’s surprise move to become Daimler’s largest shareholder has apparently been setting off alarm bells in Berlin as well.
“What’s disturbing is the way Geely just crept up on Daimler out of nowhere,” MP Kerstin Andreae, the Greens’ expert on economic policy was quoted by The Financial Times as saying. “One fine day Daimler’s CEO [Dieter Zetsche] woke up to find he had a new principal shareholder, and that’s a huge change in the company’s ownership structure.”
“The fear is that the state is somehow behind this deal, that geopolitical as well as economic interests are tied up in it,” a senior German official was quoted as saying.
Geely chairman Li Shufu didn’t help his case among Germans when he said, speaking on a Chinese television broadcast that the investment was designed to “support the growth of the Chinese auto industry” and “serve our national strategies.”
“You increasingly have the feeling that Germany and China are moving from being partners, to rivals, to adversaries,” says Dirk Schmidt, an expert on Chinese foreign policy at the University of Trier. “The change in mood is astonishing, considering how quickly it’s happened.”