For­eign firms may think twice be­fore ap­proach­ing US mar­ket, says Lau­rence Dodds in San Fran­cisco

The Daily Telegraph - Business - - Front Page -

The an­nounce­ment re­sem­bled a ded­i­ca­tion to some old-world monarch. “Mi­crosoft fully ap­pre­ci­ates the im­por­tance of ad­dress­ing the pres­i­dent’s con­cerns,” it said. “Mi­crosoft looks for­ward to con­tin­u­ing di­a­logue with the United States gov­ern­ment, in­clud­ing with the pres­i­dent,” it went on. Then the cherry on top: “Mi­crosoft ap­pre­ci­ates the US gov­ern­ment’s and pres­i­dent Trump’s per­sonal in­volve­ment.”

So read the com­pany’s no­tice that it would press for­ward with ne­go­ti­a­tions to buy TikTok, the Chi­nese vi­ral video app which came close to a to­tal US ban last week­end. An 11th hour con­ver­sa­tion be­tween Trump and

Satya Nadella, Mi­crosoft’s chief ex­ec­u­tive, re­vived the chance of a deal.

But if the pres­i­dent’s force­ful per­sonal in­ter­ven­tion raised eye­brows, that was noth­ing to his next pro­posal. “A very sub­stan­tial por­tion of that price is go­ing to have to come into the trea­sury of the United States, be­cause we’re mak­ing it pos­si­ble for this deal to hap­pen,” he told re­porters.

“Right now, they don’t have any rights un­less we give it to them... it’s a great as­set, but it’s not a great as­set in the US un­less they have the ap­proval of the US.”

Trump’s nakedly trans­ac­tional tone – as well as his ap­par­ent ground as­sump­tion that any cor­po­rate deal in a free mar­ket econ­omy should be sub­ject to his per­sonal veto – con­sti­tutes a new level of in­ter­ven­tion, the­o­ret­i­cally go­ing far be­yond cases where na­tional se­cu­rity is at stake.

Matt Levine, a colum­nist for Bloomberg, sum­marised his mes­sage as “Amer­ica: we will ex­pro­pri­ate the as­sets of for­eign com­pa­nies if some­one pays us a big enough bribe”.

That raises press­ing ques­tions for any tech firm hop­ing to re­ceive in­vest­ment from or be ac­quired by for­eign com­pa­nies. Will all fu­ture

‘Any ma­jor ac­qui­si­tion could be sub­ject to his in­ter­fer­ence – from China, but also France or Brazil’

over­seas deals re­quire them to kiss Trump’s ring as Mi­crosoft did? And if so, given the pres­i­dent’s mer­cu­rial ne­go­ti­at­ing meth­ods, will they be worth both­er­ing with at all?

“It re­ally does hark back to me­dieval times,” says Gary Huf­bauer, a se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics, who de­scribed Trump’s treat­ment of

TikTok as highly un­usual in Amer­i­can his­tory. As a US trea­sury of­fi­cial in the Seven­ties, Huf­bauer over­saw the cre­ation of the Com­mit­tee for For­eign In­vest­ment in the US (CFIUS) – a pow­er­ful “star cham­ber” which last year or­dered the gay dat­ing app Grindr to be sold off by its Chi­nese owner, and which would prob­a­bly have been Trump’s lever for eject­ing TikTok from the coun­try.

“These days, taxes paid to the gov­ern­ment are a mat­ter of statute,” he says. “The no­tion that sud­denly the pres­i­dent can say to a com­pany ‘well, there’s no statute, but you should pay some ran­som to the trea­sury, be­cause you couldn’t do this un­less I had given per­mis­sion – well, it’s been a long time since we’ve seen that in the world.”

There are plenty of past and po­ten­tial for­eign deals that could fall un­der such a pol­icy. Epic Games, the maker of Fort­nite, is part-owned by the Chi­nese tech gi­ant Ten­cent, as is Snapchat. Only two years ago, the elec­tric car maker Tesla was ex­plor­ing a buy­out by the Pub­lic In­vest­ment Fund of Saudi Ara­bia.

The same year, CFIUS and Trump blocked an at­tempt by Sin­ga­pore­based chip­maker Broad­com to buy US coun­ter­part Qual­comm – even though Broad­com was in the process of re­lo­cat­ing to Amer­ica.

Huf­bauer be­lieves that Trump’s move will have a chill­ing ef­fect on other deals. “As long as he is in of­fice,

any ma­jor ac­qui­si­tion could be sub­ject to his in­ter­fer­ence – ob­vi­ously from China, but also from France or Brazil or what­ever,” he says.

“I think we will have an­other sev­eral months of this, and I would ex­pect [that with] any ma­jor, head­line type of deal that might be in the off­ing, the firms would think long and hard about post­pon­ing it un­til next year.”

Greg Becker, chief ex­ec­u­tive of Sil­i­con Val­ley Bank, is not so sure. He ar­gues that TikTok was a spe­cial case: con­tro­ver­sial be­cause so­cial me­dia al­ways is, and forced into the head­lines by the pres­i­dent’s tweets about it.

“I think it’s still on the mar­gin,” he says. “Most merg­ers and ac­qui­si­tions, and even IPOs, are more do­mes­tic – or if they are in­ter­na­tional, I’d say they are rel­a­tively non-con­tro­ver­sial... I don’t think you’re go­ing to see much of an im­pact on cap­i­tal mar­kets.”

Even so, there may be other ef­fects. Mark Al­mond, a lec­turer in mod­ern his­tory at the Univer­sity of Ox­ford and ex­pert on Tur­key and Rus­sia, be­lieves

there will be a diplomatic fall­out, say­ing Trump ap­peared to be ask­ing for pizzo – Italy’s tra­di­tional term for Mafia pro­tec­tion pay­ments.

“Imag­ine if it was a Ja­panese app or a South Korean app,” he says. “Would it be a good thing for Amer­ica to say we don’t want Sil­i­con Val­ley to com­pete with these prod­ucts?

“This may be in­tended as a sig­nal to Bei­jing, but it may also send a mes­sage to oth­ers who are at the mo­ment not re­motely hos­tile to­wards the US... It gives his en­e­mies, and his en­e­mies in the US, grounds to say that it looks like a Mafia shake­down.”

For Erica Frantz, who stud­ies au­thor­i­tar­ian regimes at Michi­gan State Univer­sity, Trump’s treat­ment of TikTok presents an ad­di­tional dan­ger.

“Strong­man lead­ers”, she says, of­ten try to con­trol in­dus­tries, both to boost their per­sonal wealth and “divvy out perks to key in­sider sup­port­ers”.

She does not be­lieve that this deal fits that pat­tern, de­scrib­ing it as elec­tion-year pos­tur­ing rather than a gen­uine threat to democ­racy. But she does be­lieve that it “ratch­ets up the po­ten­tial for cor­rup­tion”.

As for the busi­ness world, Frantz sug­gests we might soon ex­pect more an­nounce­ments like Mi­crosoft’s. “Com­pa­nies of­ten pri­ori­tise def­er­ence to get the deal that they want in place,” she says. “It is well known that Trump is nar­cis­sis­tic and responds well to his ego be­ing stroked.”

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