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The Merits of Blocking Broadcom’s Acquisition of Qualcomm

March 15, 2018, 1:19 PM UTC

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You’re forgiven if up until this week you’d never heard of CFIUS, the Committee on Foreign Investment in the United States. It’s the murky interagency group that suggested that the President reject Broadcom’s acquisition of Qualcomm, a proposed deal not yet considered by its shareholders.

Now we all know about CFIUS, murky though it remains, because its job is to scrutinize deals that could hurt the national security of the U.S. It was born during the Ford Administration to keep sensitive military technology out of Russian hands. Now it is being used as an industrial-policy tool, and its target is overwhelmingly China.

First a word on this murkiness. CFIUS doesn’t so much act as it intimates. Its body language or silence suggests to companies their deal won’t win approval. And so they bow out. This is what happened when Alibaba affiliate Ant Financial tried to buy remittance heavyweight Moneygram and when Alibaba competitor Tencent tried to invest in Here Technologies, a digital mapmaker. This lack of transparency is relevant because CFIUS’s actions are an important part of the global M&A process, where clear signals are preferred to smoke and mirrors.

CFIUS’s industrial-policy posture isn’t new. It began during the Obama years, and it is aimed not so much at protectionism in the trade-policy sense as protecting national “champions” in the face of a state-coordinated onslaught from China. Unappealing though it may be, using CFIUS to keep China from hollowing out a key U.S. industry has its merits.

It is a screwy state of affairs when the world’s two largest economies block each other’s moves in an effort at preserving their own industries and those of allies. After Qualcomm, the biggest beneficiaries of stopping Huawei—the true target of CFIUS’s wrath in the Broadcom affair—are Samsung and Ericsson, the pride of South Korea and Sweden, respectively.

The opponents of globalization probably didn’t envision a new, non-military superpower battle over commerce. But that’s what they’re getting. The formerly anonymous CFIUS is at the center of the U.S. arsenal.