Thanks to its breathtaking market size and unparalleled manufacturing base, China has long held sway over U.S. technology companies.

But the Trump administration’s unusual decision Monday to block a foreign hostile takeover of chipmaker Qualcomm could limit the companies’ ability to continue accommodating Beijing.

In an executive order, the White House rejected the bid by Singapore’s Broadcom because “it might take action that threatens to impair the national security of the United States.”

The concern was that a sale of San Diego’s Qualcomm would result in the U.S. ceding ground to China in semiconductors and burgeoning 5G mobile technology, two areas crucial to national security and business profits.


Taking a more confrontational approach with Beijing puts U.S. tech firms in a precarious position. To gain access to China’s market, companies have had to acquiesce to Beijing’s demands for technology and censorship.

For years, that approach has gone largely unchallenged, creating conditions in which companies such as Apple have little choice but to submit to China’s calls to store customer data on its soil, and IBM and Intel to share technology with Chinese partners.

But the latest protectionist move from the White House — which last week announced tariffs on imported steel and aluminum — could signal a reshaping of America’s tech relationship with China. A key driver of that change is an obscure federal committee that has been sounding warning bells about the Broadcom bid.

The Committee on Foreign Investment in the United States — made up of officials from the departments of Treasury, Justice, Homeland Security, Commerce, Defense, State and Energy — is charged with scrutinizing foreign mergers and acquisitions for national interests. The committee, better known as Cfius, ordinarily weighs in after a deal has been finalized. But the bid for Qualcomm proved too sensitive to ignore.


A bipartisan bill is under consideration that would expand Cfius’ powers to address China’s competition for cutting edge technology. The U.S. trade representative is also investigating whether China’s policies are threatening American intellectual property and innovation.

“Five years ago, approving this deal would have been a no-brainer,” said Jim Lewis, a senior fellow at the Center for Strategic and International Studies. “But it hit three of today’s top pain points: it’s semiconductors, it’s 5G and it’s China.”

American lawmakers are increasingly concerned that U.S. firms are helping China gain the upper hand in crucial new technologies such as artificial intelligence.

That risk is heightened now that China is sliding further back into authoritarianism by stifling all forms of dissent and eliminating term limits so that President Xi Jinping can remain in power indefinitely That gives U.S. companies little room to dictate terms in a market that’s so important to their bottom lines.


If Cfius is given broader powers by Congress, it could restrict the ability of U.S. companies to transfer technology to Chinese partners, which is often the price of entry into the world’s second-largest economy.

And if Cfius makes it harder for Chinese companies to buy U.S. technology firms, Beijing would almost certainly respond in kind when it comes to Silicon Valley companies seeking more access to the Chinese market.

That would be a blow for U.S. companies such as Apple, Microsoft and even Qualcomm, which have spent years cultivating business in China, sometimes at the expense of American standards for user privacy and security.

That was the case last year when Apple had to comply with Beijing’s request to remove apps that helped users circumvent Chinese censorship. It happened again in February when the iPhone maker agreed to store its iCloud keys in China, giving authorities there easier access to users’ accounts, including those of dissidents.


Apple says it has not abandoned its values, but has to comply with Chinese laws. About 20% of the company’s net sales last year were derived from a region it calls Greater China, composed of China, Taiwan and Hong Kong.

Google has also quietly ramped up its presence in China even though it shut down its search engine there in 2010 after taking what appeared to be a principled stand against Beijing over censorship.

Microsoft partnered with a state-owned Chinese defense company to build an exclusive version of Windows 10 for the Chinese government. IBM partnered with a high-ranking official previously charged with the cybersecurity of China’s strategic missile arsenal to develop high-end servers and software.

And Qualcomm, the company that fought to preserve its independence from a foreign takeover, has long been a dominant player in China, where it sells its chips and licenses its technology.


The company was chastened in 2015 when it was fined $975 million by the Chinese government, which charged the firm with unfair pricing. Qualcomm has since invested millions to help Chinese partners develop drones, supercomputers and even its bread-and-butter chips. It has also invested in a Chinese AI start-up that’s developing facial-recognition software already being tested by Chinese authorities for surveillance purposes.

Given Beijing’s plan to make China self-sufficient in technology, experts say U.S. firms are only expediting their demise in the Chinese market by sharing valuable know-how.

“These companies are on life support” when it comes to operations in China, said Lewis of the Center for Strategic and International Studies. “The Chinese intend to force non-Chinese suppliers out of the market. All these guys are on limited time. They know it, but they may not say it.”

The tech industry isn’t ready to give up. For one, there’s still an expectation that China will live up to its obligations under the WTO to allow reciprocal trade if pressured the right way. Industry officials want Washington to persuade Beijing to loosen its market for cloud computing and widen access to consumer data, partly to inform AI technology.


By building a coalition with allies such as Japan and Germany, “China can be persuaded that it has to act consistent with global norms and rules they agreed to when they joined the WTO,” said Dean Garfield, president of the Information Technology Industry Council, a trade group that represents the tech sector. “At the same time, companies can compete globally, including in China. We can walk and chew gum at the same time.”

Garfield said U.S. tech firms aren’t rolling over for China. Behind the scenes, they’ve successfully resisted attempts to transfer top-of-the-line technology.

“There are times when the Chinese ask companies to make certain concessions to engage in business and the companies do say ‘no,’” Garfield said. “They’re not capitulating to every single request. And so the thought that it’s shortsighted for a company to compete in China because they’re undermining their success in the long term may not be true. Only history will prove that out.”

david.pierson@latimes.com


Follow me @dhpierson on Twitter

UPDATES:

5:20 p.m.: This article was updated after President Trump said he would move to halt Broadcom’s attempted takeover of Qualcomm.

This article was originally published at 3:05 p.m.