...over President Trump's decision to stop the proposed purchase of computer chip manufacturer Qualcomm by Singapore-based Broadcom in the name of national security. Critics have termed the decision radical, and highlighted two ways in which it departs from the precedents set by the government's Committee on Foreign Investment in the United States (CFIUS). First, the president, basing his action on CFIUS's letter of last week, stopped the deal before the tender offer was actually made. Second, the nationality of the purchaser—Singapore (though Broadcom had announced it would soon reconstitute itself as a U.S. company)—is not a foreign rival that can threaten national security. “If it's a Chinese investor, the bar is going to be high,” one former member of the National Security Council told The Washington Post. “A Singaporean investor you would not normally have considered a high risk.”
The coverage, however, misses the genuine radicalism underpinning CFIUS's fears about the merger. As I wrote last week, what tipped the scales against Broadcom was that it underinvests in its properties, preferring instead to mine its companies for profits at the expense of investment. The agency’s fear was that reducing Qualcomm’s investments in security-related technology like 5G communications capabilities would enable a Chinese high-tech company, Huawei, whose close ties to the Chinese military CFIUS has long documented, to steal a march on the U.S.
And CFIUS didn't stop there. The problem with Broadcom, it proclaimed, was that it followed the model of private equity firms, hollowing out their companies to extract profit. As the agency's letter said, “Broadcom's statements indicate that it is looking to take a ‘private-equity'-style direction if it acquires Qualcomm, which means reducing long-term investment, such as R&D, and focusing on short-term profitability.”
In short, CFIUS just indicted a common Wall Street practice and numerous Wall Street practitioners for weakening the American economy. The radicalism of CFIUS's warning on the proposed purchase is precisely its economic empiricism: This is what private equity generally does, CFIUS has declared. There's no reason to believe for so much as a nanosecond that Trump understands this basis for CFIUS's warning, but that's no reason why the business press should overlook it, too.
