By Reva Goujon
About the author: Reva Goujon is a director at Rhodium Group, leading client engagement for Rhodium's corporate advisory team.
China's anti-monopoly arm announced an investigation on Dec. 9 into a four-year-old transaction between U.S. chip maker Nvidia and Israel-based Mellanox Technologies. The ramifications could be significant, and not just because Nvidia is a stock-market darling.
Targeting a U.S. tech champion represents a step-change in Beijing's retaliation. Beijing is exposing its anxiety over U.S. moves to tighten loopholes and cover new chokepoints in semiconductor supply chains. The more U.S. controls bite, the stronger the impulse for Beijing to go after bigger, symbolic targets in retribution.
But China's retribution calculus could backfire. The anti-monopoly probe could end up crippling the one area where China has been able to wield significant extraterritorial clout: merger-and-acquisition reviews.
Beijing's probe focuses on alleged violations of antitrust remedies Nvidia agreed to in 2020 to close the Mellanox transaction. Three scenarios show how it could turn out.
First, Beijing may use the case against Nvidia as a bargaining chip with the incoming U.S. administration. The State Administration for Market Regulation, China's anti-monopoly agency, would move to impose a hefty fine on Nvidia. Beijing could then quietly communicate to President-elect Trump that this is merely a response to "reckless" measures by the Biden administration. A Trump-Xi reset on tech controls could make the investigation go away.
That said, it is hard to imagine the Trump administration rewarding Chinese coercion against Nvidia, the engine of the U.S.-led artificial-intelligence revolution, with a negotiated rollback of tech controls.
Second, should SAMR follow through with a fine, Nvidia could simply pay it. A rough estimate puts the potential fine in the range of $6.7 billion to $56 billion, depending on one's reading of Chinese law. China accounts for 15% of Nvidia's revenue. The company may prefer to settle the case and preserve its market foothold in China, while China may recognize it still needs Nvidia for AI chips.
Third, China could overstep and see the retaliatory move backfire. If a Chinese attempt to bargain with Trump on U.S. tech controls flopped, SAMR would be pressured to follow through with its threats. The message to businesses would be stark: Compliance with U.S. export controls is grounds for punitive action by China.
Blatant retaliation against the U.S. AI champion may, however, cross a line for the incoming administration and Congress. Trump in his first term did not take kindly to China going after U.S. tech companies. His 2018 and 2019 China tariffs were justified by a trade report featuring U.S. memory chip maker Micron Technology. It was a poster child for U.S. intellectual property theft in China. China's cybersecurity agency later targeted Micron as retribution for the first wave of Biden-era semiconductor controls.
These scenarios point to a bigger question. If China is wielding its anti-monopoly arm in retribution rather than legitimate competition grounds, should the U.S. and others continue to recognize SAMR's extraterritorial veto over certain M&A? China has specific thresholds for company annual turnover in determining which cases are subject to SAMR review, but SAMR still has the power to probe below-threshold transactions on national security grounds. This allows Beijing to play spoiler in international M&A.
SAMR blocked a 2018 $44 billion merger between Qualcomm and NXP. In 2023 it derailed an acquisition by Intel of Israel-based foundry Tower Semiconductor. Industry pressure to consolidate and geopolitics are likely to drive more semiconductor deals. The fate of Intel remains an open question as the U.S. confronts an uncomfortable question of how to make the biggest recipient of Chips Act funding competitive in leading-edge chip production. Beijing has signaled that it may conduct a cybersecurity review of Intel products sold in China.
Will the U.S. continue to live under the threat of a Chinese veto over strategic M&A in critical supply chains, especially when those transactions are grounded in national security imperatives to derisk from China and ensure the U.S. outcompetes China in foundational technologies? China's actions may instead drive the U.S. down an unconventional path that aims to sideline China altogether.
Antitrust and global competition policies are U.S. inventions. Armies of U.S. regulators have deployed to China and other countries to establish similar standards and norms to assess anticompetitive behavior and promote cross-jurisdictional coordination. But the U.S. has been willing to disrupt its own global norms and institutions before, including the World Trade Organization, and could easily do so again.
If the U.S. determines China is politicizing its antitrust tool in extraterritorial fashion, companies with U.S. backing could stop recognizing SAMR authority on transactions with national-security implications. Effectively, that could mean targeted firms rely on U.S. political and legal backing to challenge the validity of SAMR cases, accepting that such cases will fall into legal purgatory. Companies with significant, direct China exposure would be at risk of fines, product bans, and even arrests. But such moves would risk accelerating investor flight when the Chinese economy is already in structural decline.
Beijing's targeting of U.S. tech giants could backfire, leaving China ensnared in its own web of unintended consequences.
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December 20, 2024 09:20 ET (14:20 GMT)
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