Blocking Qualcomm deal was best
President Donald Trump's decision to quash an overseas bid for Qualcomm Inc. was almost certainly the right thing to do. That it came with little warning and not much explanation, however, suggests some significant flaws in the way the U. S. evaluates such deals.
Broadcom, based in Singapore, had made an unsolicited $117 billion offer to acquire Qualcomm, a leading U.S. chipmaker. Amid scrutiny of the bid by the Committee on Foreign Investment in the U.S. — a panel that reviews such deals for security concerns — Trump issued an executive order blocking it. It was only the fifth such deal ever held up by a U.S. president, and the largest by far.
Although Trump didn't explain his decision, the bid raised some obvious national-security concerns. Qualcomm is a major supplier for the Pentagon and holds numerous classified contracts. Its facilities are subject to a security clearance that could be jeopardized by foreign ownership. Yet the government also laid out a more convoluted rationale that could set a worrying precedent.
Last week, the committee warned that Broadcom, an enthusiastic cost-cutter, might slash Qualcomm's R& D spending in pursuit of short-term profits. In doing so, it could put Qualcomm at a disadvantage in the race to offer next-generation wireless and diminish its influence in setting standards and protocols. That, in turn, could give a leg up to Qualcomm's top competitor, Huawei Technologies Co. Ltd., which has ties to the Chinese government and which U. S. intelligence agencies have deemed a security threat.
That's a long and twisted chain of logic. It suggests a broadening mandate for CFIUS and an expanding definition of national security, without much in the way of guardrails. Two concerns in particular need to be addressed.
One is that CFIUS too often leaves foreign businesses guessing about what it finds acceptable. Its primary objection to this deal, after all, concerned a company that had no obvious involvement in it. CFIUS can't be expected to elucidate its reasoning for every decision. But it can be more open about what sectors it deems sensitive, what remedies it will accept and how it will approach technologies with dual civilian and military uses.
A second worry is that this opaque process could be abused to advance a protectionist agenda. The White House has already invoked implausible national-security concerns to justify its reckless steel and aluminum tariffs. Some members of Congress would be all too happy to block foreign acquisitions of U. S. agriculture and film companies. That kind of thing will only impede investment, restrict competition and encourage retaliation while leaving the U. S. precious little room to criticize others for similar conduct.
Transparency is the remedy for these concerns. Congress is considering legislation to clarify and modernize the criteria CFIUS uses to evaluate deals, which is a good start. It may also identify "countries of concern" that would be subject to automatic scrutiny. That could reassure allies, offer an incentive for reform and allay fears of broader protectionism.
Trump insists the U. S. is "open for business." He should make sure the rest of the world knows the house rules.