Trump Tanks China Chip Deal To Protect US National Security

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Ryan Pickrell China/Asia Pacific Reporter
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President Donald Trump defended U.S. national security Wednesday by blocking a Chinese company’s attempt to purchase a leading American chip maker.

Canyon Bridge Capital Partners, a Chinese company with government support, tried to acquire Lattice Semiconductors, but when the deal went to the president for review, it was rejected.

“The president issued an order prohibiting the acquisition, Treasury Secretary Steven Mnuchin explained, pointing to national security risks such as “the potential transfer of intellectual property.” The “Chinese government’s role in supporting this transaction” was particularly alarming.

Lattice is the third largest American producer of Field Programmable Gate Array (FPGA) technologies, which are used in satellites and missile defense, key components of the U.S. defense industry. China lacks the ability to compete against American semiconductor producers, so mergers and acquisitions are used as an alternative in the face of limited Chinese innovative capacity.

The $1.3 billion takeover of Lattice by a Chinese firm was first announced in November last year, and the deal immediately raised red flags.

In December, North Carolina Representative Robert Pittenger launched a bipartisan campaign urging the Committee on Foreign Investment in the United States (CFIUS) to block the transaction, and the decision Wednesday was reportedly based on a recommendation from CFIUS.

Companies typically abandon deals that fail to obtain CFIUS approval, but Canyon and Lattice made a rare appeal to the president himself to intervene. Trump’s decision to reject the acquisition signals that the administration will be watching Chinese investments and purchases in the U.S. closely.

“Over the past year, there has been a significant increase of attempted Chinese acquisition of U.S. semiconductor firms, which we believe illustrates China’s strategic effort to bolster its own capabilities with U.S. technologies as well as disrupt the American military supply chain,” the congressman explained in a letter to former Treasury Secretary Jack Lew last year.

The congressman believes “we shouldn’t be too cozy” with China, Jamie Bowers, the communications director for Pittenger, told the Daily Caller News Foundation. He explained that China has also made plays for the Chicago Stock Exchange, which could offer China access to critical parts of the U.S. financial system.

“It is vital” to protect U.S. national interests and intellectual property, Pittenger told TheDCNF, adding that he is “grateful” Trump chose to block the acquisition.

“We’ve got to be very careful. The Chinese have been very aggressive,” he explained, adding that Chinese companies have already purchased 43 semiconductor firms, 22 of which have been in the U.S., since 2014. Last year, the Chinese spent $46 billion on acquisitions in the U.S., causing the Department of the Treasury to take a closer look at transactions.

China, in accordance with the demands of its five-year plan, has launched a massive campaign backed by hundreds of billions of dollars in government funds to acquire semiconductor firms worldwide.

The U.S. dominates the semiconductor industry, and “semiconductor components were the third-largest U.S. manufacturing exports over the last five years,” according to a U.S.-China Economic and Security Review Commission report published in late November. U.S. companies also produce the most semiconductor manufacturing equipment.” The American semiconductor industry generates billions of dollars each year and employs several hundred thousand people.

More, importantly, “semiconductors are an important factor in driving the U.S. military’s technological advantages in surveillance, communications, and propulsion,” the commission argued, adding that “the loss of domestic production erodes U.S. institutional and technological know-how and the ability to design and commercialize emerging defense technologies.”

The Trump administration has taken a tough stance on China, launching a major investigation into Chinese theft of American intellectual property last month. Beijing has repeatedly expressed strong displeasure with the Trump administration’s actions.

“Conducting security checks on a sensitive investment is a nation’s legitimate right,” Gao Feng, the Chinese minister of commerce said in response to Trump’s decision to shut down the Beijing-backed acquisition of Lattice, adding that “it shouldn’t be used as a protectionist tool.”

Pittenger acknowledged that the U.S. can have a healthy, mutually-beneficial trading partnership with China, but it is important that CFIUS review any acquisition that could negatively impact American national security. Strategically, the acquisition of Lattice would have been very beneficial to the Chinese.

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