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FTC commissioners voted unanimously to attempt to block a merger between semiconductor firms Nvidia and Arm.
The anti-monopoly (or “New Brandeis”) movement’s emergence has been far too narrowcast in traditional media as a movement consumed with opposition to Big Tech. You see this vividly in Sheelah Kolhatkar’s recent takeout on the movement in The New Yorker. Lina Khan, the chair of the Federal Trade Commission (FTC) and the subject of the story, explains pretty clearly that her interest in monopoly extends across a wide range of industries; the list also includes agriculture, medical supplies, even chocolate bars. But the only enemies Kolhatkar highlights in her piece are the dominant tech platforms.
Would that it were only tech. The current $1.8 trillion merger wave (and that’s just between January and August of this year), in addition to being a major source of profits for that former outsized villain, the Wall Street mega-banks that handle these transactions, has crossed virtually every industry. Not every buyout is a tech industry phenomenon; in fact, far more are coming from the world of private equity. The biggest acquisitions in recent weeks have come in health care and newspapers. Conflating anti-monopoly and Big Tech is a serious category error that misunderstands and limits the project of the New Brandeisians.
If you want to know how Khan is actually approaching her job, take a look at the lawsuit filed last week to block a merger between semiconductor firms Nvidia and Arm, a deal estimated at $75 billion. Not only does this show Khan’s broader interest in taming monopolies, including those that arise through vertical combinations of different aspects of production, but the entire commission’s broader interest: The vote of the FTC commissioners to move forward with the lawsuit was unanimous. Despite complaints from pro-monopoly forces that Khan is out of step with decades of the stunted bipartisan practices of antitrust, in this case she moved the establishment, including the two recalcitrant Republicans on the commission, to her line of reasoning.
Khan’s interest is not monomaniacally taking down tech platforms but ensuring open markets.
The Nvidia-Arm deal is critical for a number of reasons. We’re in the midst of a semiconductor crisis, as pandemic weirdness has left companies unprepared for a surge in electronics purchases that the current bottleneck couldn’t handle. The shortages have surged prices for automobiles in particular, as well as for most other devices requiring computer chips.
Nvidia, which began life as a producer of graphics cards for gaming consoles, has shifted more recently into a broader microchip supplier. Arm, a British firm owned by Japanese capital firm SoftBank, is a major designer of chips used in an array of products, from cellphones to autos to data centers. Suppliers like Nvidia rely on Arm for its licensed designs of computer chips. Until now, Arm has licensed anybody to supply the chips they design (they are known as the “Switzerland” of the industry), but they were never part of a larger chipmaking conglomerate.
In other words, Nvidia and Arm are not in competition with one another, but are complementary. This is known as a vertical merger, and these kinds of acquisitions were hardly ever challenged in past years. But common sense dictates why it’s so important that Khan’s FTC is breaking with that practice and signaling more vertical-merger enforcement in the future.
The fear in this case is that, by owning both a large semiconductor supplier and the design firm that competing suppliers must also use to create their own products, Nvidia could dominate the market and undermine rivals. That’s precisely what the FTC argues in its case: that it wants to “prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” as the FTC’s Bureau of Competition director Holly Vedova put it.
Nvidia would also acquire invaluable data on its competitors, since Arm has licensed chip designs to practically all of them. As well, Arm would be less likely to work with companies working on products likely to upend Nvidia’s market position, under this theory.
As they, too, rely on chips, some of the companies that fall under the umbrella of Big Tech, like Google and Microsoft, are opposed to this merger and therefore aligned with Khan, despite fighting her tooth and nail in other contexts. Khan’s interest is not monomaniacally taking down tech platforms but ensuring open markets.
While the trial, slated for the FTC’s administrative court, is scheduled for next August, analysts are already saying that they doubt the merger will go forward. The business press is shrugging off the likely failure, sniffing that Nvidia doesn’t need Arm to be profitable and that they’re benefiting from historic demand for semiconductors.
Fixing our supply chain crisis necessarily means fixing our concentration crisis.
But the FTC action is part of a broader semiconductor industrial strategy for the Biden administration, and an example of how competition can play a key role in that. The semiconductor shortage already had policymakers thinking about the folly of long and concentrated supply chains for such a vital product. Even Nvidia is reliant on the Taiwan Semiconductor Manufacturing Company (TSMC), the global leader in chip production.
A $50 billion fund to reshore semiconductor manufacturing is working its way through Congress, but even before it passes, things are moving. Ford has announced it would develop its own computer chips and look to domestic supply for them. Samsung recently made plans to build a semiconductor factory in Taylor, Texas. It’s clear that more chips will be made in America in the coming years. But without competitive markets, the money put into this reshoring will be wasted if the exclusionary conduct and market power of a company like the merged Nvidia and Arm stifles the startups.
In reshoring industry, the administration is going up against perhaps the most powerful force driving the production of both semiconductors and plenty of other products: the financial titans who demand offshoring and cheap labor as a profit-taking strategy. As Garphil Julien wrote recently for Washington Monthly, resilience was sacrificed long ago for an earnings statement-to-earnings statement business philosophy, where financiers drive the supply chain location and production strategies of manufacturers and retailers. That’s why attacking concentration in semiconductors and other markets also strikes at Wall Street’s power.
There’s much to be done to reverse runaway financialization and the hollowing out of our industrial base. But functioning antitrust enforcement is a big part of that. We’re coming off a pandemic-fueled breakdown of the physical supply chain; shrinking its length and removing bottlenecks is key. But there’s a more synthetic supply chain, one devised in the boardrooms of monopolists, which artificially create bottlenecks and restrict products other than the ones they make or finance from getting to market. The offshoring and monopolistic models of the past several decades featured a hidden risk that the pandemic revealed, and transformed that risk into a crisis. Fixing our supply chain crisis necessarily means fixing our concentration crisis.
This is Khan’s first major antitrust enforcement action at the FTC, outside of following up on previously initiated cases against Facebook and Google. On this action, she’s created a rough consensus, with its unanimous support at the agency and even support from the large tech companies. But in its own way, it’s a quietly radical move, both as a salvo against vertical mergers, and as a way to bolster U.S. industrial policy.
