A big part of President Donald Trump's economic message during the campaign was his promise to get tough on China, which he singled out for drawing jobs from the U.S. with the lure of cheap workers and generous government subsidies and for erecting trade barriers that favor exports from that country over imports.
If he wants to fend off threats, he might send his White House staff searching for a Jan. 6 report issued by President Barack Obama's White House science officers. The web link to the report, which recommended steps U.S. officials can take to protect the U.S. semiconductor industry, no longer works, no doubt because of the new president's zeal to scrub all things Obama from the White House's communications outreach. A link to copy from The Deal, owned by The Street, is here.
But Trump would likely be receptive to the report's theme: that China's industrial policy designed to quash the U.S. lead in the global semiconductor market and place itself in that role is a threat to U.S. economic and national security and the U.S. should counteract those efforts.
Regulators' wariness of semiconductor sector acquisitions by buyers with Chinese ties already has killed many recent deals. But, typically, the challenges are targeted at only deals involving products sold to the military or that are critical to the U.S. telecommunications infrastructure. Fujian Grand Chip Investment Fund LP on Dec. 8 dropped its €670 million ($717.5 million) bid for German chipmaking equipment supplier Aixtron SE after President Obama said he would block the Chinese investment fund from acquiring the Aixtron's U.S assets. Lam Research Corp. (LRCX) and KLA-Tencor Corp. (KLAC) spiked their $10.6 billion merger in October due to an extended investigation by the Committee on Foreign Investment in the U.S. In January 2016, Royal Philips NV backed out of its $3.3 billion agreement to sell its Lumileds lighting components business to a Sino-U.S. consortium, citing opposition by Cfius. Others deals halted under U.S. government threat include Fairchild Semiconductor International Inc.'s (FCS) $2.46 billion takeover offer from China Resources Microelectronics and Hua Capital Management, China's Unisplendour Corp. Ltd planned investment in Western Digital Corp. (WDC) , and Tokyo Electron Ltd.'s 2015 effort to acquire Applied Materials Inc. (AMAT) for $9.4 billion.
It's not as if semiconductor deals involving Chinese buyers can't get done. In December 2015, GlobalWafers Co., Ltd. was cleared for its $683 million acquisition of SunEdison Semiconductor Limited (SEMI) , and three other semiconductor-related deals involving Chinese and other foreign buyers were approved in 2015: Globalfoundries Inc.'s acquisition of IBM Corp.'s (IBM) microelectronics business, NXP Semiconductors N.V.'s (NXPI) $1.8 billion sale of its RF Power unit to Jianguang Asset Management Co. Ltd. and Integrated Silicon Solution Inc.'s (ISSI) acquisition by Uphill Investment Co.
According to the report, economic threats should be added to the list of national security concerns that could result in an acquisition of U.S. assets by foreign buyers being blocked by Cfius, particularly if the buyer's home country (China) is violating international trade agreements. Under the Obama administration's plan, the U.S. would only expand the definition of national security threat to take much more widespread action blocking deals involving China when the negotiated rules have been violated. The report hinted that China's noncooperation on economic and trade issues would provide more proof of a national security threat. Trump's only real reservation about the plan might be to quibble with the some of the steps Obama's team recommended as being too plodding and requiring naive faith in China's willingness to negotiate and follow a set of rules governing such issues as each countries' import restrictions and use of government subsidies.