Donald Trump has blocked the $1.3bn acquisition of a US semiconductor company by investors including a state-backed Chinese investment fund, rejecting an appeal from the group for him to overturn a government review that found the deal posed a threat to US national security

Wednesday’s move marked only the fourth time that a president has blocked a corporate acquisition on national security grounds and the first known time that Mr Trump has intervened personally to block a deal. It comes amid growing scrutiny of Chinese investments in the US and Europe and calls for Washington to toughen its rules governing foreign investment, while Beijing has been making a strategic push to acquire new technologies. 

The Committee on Foreign Investment in the US (Cfius) found that Lattice Semiconductor’s acquisition by a group of investors including the state-controlled China Venture Capital Fund posed a threat to US national security — but in a regulatory filing earlier this month, the publicly traded chipmaker said it was appealing to Mr Trump to overturn the ruling.

The White House on Wednesday said Mr Trump had decided to follow the committee’s recommendation and to block the deal. It cited Beijing’s support for the acquisition, the potential transfer of intellectual property to China via the acquisition of Lattice and “the importance of semiconductor supply chain integrity” to the US. Some of the company’s products were also used by the US government, the White House said. 

“Cfius and the president assess that the transaction poses a risk to the national security of the United States that cannot be resolved through mitigation,” the White House added. 

Lattice declined to comment on Mr Trump’s move. The company, based in Portland, Oregon, specialises in silicon chips that are programmable, which makes them well suited for complex tasks like deep learning. Other US companies that make this type of chip include Xilinx and Altera. 

Patrick Moorhead, chips analyst at Moor Insights, said the programmable silicon chips are often incorporated in weapons and defence systems, which could explain why the White House blocked the deal. 

“I think it’s as simple as, there is Lattice silicon inside of military systems that the US government doesn’t want to get in the hands of another country,” he said. 

Although Lattice does not currently sell equipment to the US military, it has done so in the past and the military often stockpiles chips that are incorporated into its designs. “Cruise missiles have chips in them that are 20 years old,” Mr Moorhead said. 

In a September 1 regulatory filing laying out its appeal to Mr Trump, Lattice had said that both it and its group of buyers had promised “substantial mitigation measures”. 

“Lattice remains of the view that the proposed transaction does not raise any national security concerns that cannot be addressed by the comprehensive mitigation measures that Lattice and [the acquirers] have proposed to implement,” the company said, citing the benefits of the proposed deal to US stockholders and employees. 

Lattice, however, was always fighting an uphill battle. 

“No president has ever rejected a recommendation of Cfius to prohibit a transaction,” said Shawn Cooley, a partner and Cfius expert at Freshfields Bruckhaus Deringer in Washington. 

The move also highlighted the US’s longstanding and growing sensitivity about both Chinese investments and Beijing’s interest in the US semiconductor sector, Cfius experts said. 

Barack Obama last December became only the third US president to block a deal on national security grounds when he rejected the acquisition of a semiconductor equipment maker, Aixtron, by Chinese buyers. In a report released in January the outgoing Obama administration also warned of the need for the US to do more to protect its semiconductor industry. 

As such Mr Trump’s move said little about his attitude towards Chinese investment, said Anne Salladin, a former US Treasury lawyer who worked on Cfius reviews under several administrations and is now at Washington law firm Stroock & Stroock & Lavan. 

“I think it’s premature to view this as what will go on with Chinese transactions in the future,” she said. “This is squarely in the semiconductor space, which has been firmly in the US government’s sights for some time.” 

Wednesday’s presidential move also comes amid calls for reforms of Cfius in Congress and a growing antipathy towards China overall in Washington. 

Republican Senator John Cornyn has been working on a bill that would establish a list of countries of special concern and also subject minority investment in US companies and joint ventures to greater scrutiny. If they pass Congress such changes would mark the most significant reforms of Cfius in a decade. 

Mr Cornyn has made clear the changes are aimed at growing concerns over China’s strategic push to gain an economic advantage by acquiring US and other technology companies. In a speech in June the Texas senator accused China of seeking to “weaponise” investments in US companies. 

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