President Donald Trump has made it clear that any financial deals that could be linked to China are. But with Chinese investment in the U.S. on the decline, the policy raises questions about potential effects on U.S. investors and workers.
Some 2.6 million U.S. jobs rely on the U.S.-China trade relationship, according to recent research from Oxford Economics. About 43,000 are tied to China's direct investment in the U.S. But as Chinese financial inflows to the U.S. slide and with several potential China deals scuttled since the president took office, the era of Chinese investment in America could be ending.
Direct U.S. investment by China peaked in 2016, with $46 billion worth of deals, before falling the following year by more than a third, according to Rhodium Group. Newly announced acquisitions fell even more, by 90 percent.
The latest salvo in the potential U.S.-China trade war is the scuttling of Broadcom's move to take over U.S. chipmaker Qualcomm (QCOM). The proposed merger was denied not because Chinese companies were involved (Broadcom is based in Singapore) but because the deal could have made China more competitive in , a field the U.S. is eager to dominate, given the importance of the next-generation wireless broadband standard.
The decision prompted the head of Chinese electronics company TCL to accuse the U.S. of anti-China bias, calling its treatment of Chinese companies "unfair and absurd."
"It is only the fifth time that the White House has ever blocked any kind of transaction, and three of them have been in the Trump administration," said Robert Litt, an attorney at Morrison & Foerster who specializes in national security.
Qualcomm also marks the 10th proposed foreign deal to fall apart or be denied since Mr. Trump took office. Of the 10 deals reviewed by the Committee on Foreign Investments in the U.S. (CFIUS) -- an intergovernment agency tasked with approving proposals that would give foreign firms ownership of U.S. assets -- eight involved a Chinese company.
In January, the purchase of MoneyGram (MGI) by China's Ant Financial failed to win approval on national security grounds. Last September, CFIUS declined to clear an acquisition by China's Canyon Bridge Capital Partners of the U.S. chip maker Lattice Semiconductor (LSCC). In other cases, companies withdrew their merger bids.
While other administrations have made moves to protect domestic industry, Mr. Trump's use of national security as a basis for disallowing deals is unprecedented, said Robert Clifton Burns, an attorney at Bryan Cave who specializes in international trade. If maintaining U.S. competitiveness in 5G technology was a concern, the committee could have made it a condition of the merger instead of squashing the transaction, Burns said.
"In a normal situation, what you do is put in a mitigation agreement, and if they didn't live up to it, you would reverse the transaction. The idea that we're just going to block it without further negotiation is absolutely unprecedented," he said.
It's also notable that administration relied on national security arguments to deny a deal that was likely to face scrutiny on the basis of antitrust concerns. "We're really in this novel environment where the president and the administration are finding innovative ways to impose protectionist measures," said Gregory Daco, head of U.S. economics at Oxford Economics.
Since 2000, more than 1,500 deals have involved Chinese companies investing in the U.S., according to research by Rhodium Group. Chinese companies have made direct acquisitions in every U.S. state but eight. The U.S. companies in which Chinese firms hold large stakes run the gamut. They include technology giants IBM (IBM) and Tesla (TSLA), automaker General Motors (GM), real-estate companies Brookfield Property Partners (BPY) and CBRE Group (CBG), agriculture giant Smithfield Foods and the fast-growing startups Uber, Lyft, Snap, Grindr and Airbnb.
With U.S. business enjoying a time of deregulation and modest stimulus from tax cuts, global trade protections risk putting a drag on growth, Oxford Economics' Daco noted in a presentation. Already, Chinese deals are taking two to three times as long to gain approval as they did under the previous administration, according to TCL Chair Li Dongsheng.
With Chinese investment not only supporting U.S. jobs but keeping borrowing costs low, an anti-China policy could put a damper on growth, said Marshall Meyer, emeritus professor of management at Wharton School of Business.
"It will have a chilling effect, yes, absolutely," he said.
"Any foreign investor has to face a series of uncertainties. They have to face the CFIUS labyrinth, and now they've got to face [the White House]," he added.
With President Trump reportedly calling for up to $60 billion in tariffs on Chinese imports and U.S. regulators set to examine whether , a trade war between the two countries looks to be just heating up.
"I think the key risk is that you have the initial spark that emanates from the trade sector, but the real fire takes place outside of that, with indirect retaliation in [Chinese] investment in U.S. Treasurys," said Daco.
"China might not need to impose tariffs on U.S. exports. They might just say, 'Listen, we're going to curb our purchases of U.S. Treasurys.' Playing outside of the rulebook means you don't just play in the realm of trade."