The U.S., China and the Chip Industry

Beijing cried foul over Trump's decision to block the acquisition of Lattice Semiconductor. It should be prepared for more of the same.

 

It comes as little surprise that last week's decision by U.S. President Donald Trump to block the acquisition of Lattice Semiconductor by an equity firm funded partly by the Chinese government ruffled a few feathers in China.

 

According to the state run news agency Xinhua, a spokesman for China's Ministry of Commerce balked at the decision, telling reporters at a press conference that foreign governments shouldn't use government review of acquisitions to implement protectionism under the guise of protecting national security.

 

The spokesman, identified as Gao Feng, reportedly said that a Chinese company acquiring a foreign business is a normal market practice, which should be treated fairly and objectively.

 

It's likely that we haven't seen the last of apprehension over China's global ambition in the semiconductor space bubbling up to this level, particularly if China intends to try to further its goals through the acquisition of Western firms.

 

China's Ministry of Commerce may well have a point that the argument that Lattice is important to U.S. defense is thin. Lattice itself has largely exited the defense business in recent years, and the company appeared to be willing to divest other products to push the deal with Canyon Bridge through a review by the Committee for Foreign Investment in the United States.

 

On the other hand, while a Chinese company acquiring a foreign business is indeed typical practice, in this case that Chinese firm is a state-backed entity. And there is legitimate reason to worry that China is attempting to bolster its own semiconductor industry while simultaneously subverting the U.S.'s.

 

The U.S. government's real worry is the threat to the security and economy of the United States if one of its most important industries, semiconductors, is bought, piecemeal, and taken elsewhere — particularly to China.