China’s risky game plan on trade war

By scuttling the proposed merger between Qualcomm and NXP, Beijing is hoping American businesses will pressure the Trump administration; we’ll soon know if the strategy works

PUBLISHED : Monday, 30 July, 2018, 8:05pm
UPDATED : Monday, 30 July, 2018, 9:57pm

The failed merger of Qualcomm and NXP would have produced the world’s largest semiconductor and telecoms equipment maker. But China has proved to be its last insurmountable hurdle. This has naturally led to speculation whether the collapsed deal worth US$44 billion is a new casualty of the Sino-US trade war now heating up.

The American chip-making giant walked away from a two-year courtship of its Dutch rival after the deadline for their purchase agreement passed without a decision from China’s antitrust agency, the State Administration for Market Regulation. The Chinese are the last and only one of eight regulators, including those from Japan and the United States, that didn’t provide an approval. Businesses that span the world often need approvals from multiple jurisdictions.

Qualcomm drops US$44 billion NXP bid after failing to secure Chinese regulator’s nod

The Chinese were quick to respond, first saying they were still open to talks and then, when it was clear that Qualcomm had killed the deal, insisting it was not responsible, and that its interests rested solely on competition and antitrust issues. But given the rising hostility from Washington over trade, people are naturally asking whether Beijing could be opening a new battlefront beyond fighting over tariffs and the agricultural sector. After all, given the bilateral trade imbalance, China could no longer match Washington’s tariffs. A natural target for China would be US firms with extensive business in the mainland market. So, why are the Chinese so coy about the scrapped deal between Qualcomm and NXP? Well, Beijing has been unusually muted even after US President Donald Trump’s latest US$500 billion tariff threat. It is a war that Beijing doesn’t want and is making every effort to de-escalate. It is also keeping its options open and acting cautiously, especially after the European Union rejected its attempt to form a united front against Washington over trade.

In retrospect, that was wishful thinking. However much the EU agrees that rising tariffs hurt global trade and finds Trump distasteful, its long-term interests, strategically, economically and culturally, lie with the United States. It’s apparent Beijing wants deniability with the collapsed Qualcomm deal. It says it is open to further input from the company to address antitrust concerns. But its inaction inevitably makes other US companies with Chinese exposure worry.

Already, traders and policymakers are keeping a close eye on other major US mergers. Among these are Disney’s planned US$71 billion takeover of much of 21st Century Fox; the proposed merger of two major industrial gas companies, Germany’s Linde and the US-based Praxair; and a planned tie-up in aerospace between United Technologies and Rockwell Collins.

China wants US business interests to pressure Trump without appearing to do so. Will it work or make it worse? We will soon know.