China is the ghost at the U.S. antitrust feast

The American approach to merger rules has for a while been focused on keeping China out. But President Joe Biden’s new tactic of slowing down corporate consolidation might hand Beijing a gift in disguise. Or at least, U.S. business chiefs are likely to argue as much as they pursue big deals in 2022.

Merger review policy under Biden’s predecessor Donald Trump was repurposed to essentially cut off Chinese acquisitions of U.S. companies in a host of industries, from semiconductors to aerospace and even hotels in sensitive locales. The Committee on Foreign Investment in the United States, which can block deals without public explanation, gained a broadened mandate, including new powers to block minority investments. The volume of U.S. deals with Chinese buyers has slumped around 60% since 2017, according to Dealogic, delivering a paltry $5 billion haul in 2021, an otherwise record year for global dealmaking.

Now, antitrust enforcers are aggressively trying to curtail domestic deals too. But the risk is that by doing so, they stop U.S. companies from being able to compete with foreign rivals. That’s a particular risk in aerospace and defense. An example is Lockheed Martin’s bid to acquire rocket-maker Aerojet Rocketdyn. The $4.4 billion deal was struck in 2020, but regulators won’t opine on whether it can proceed until 2022. Lockheed boss James Taiclet has warned that the delay puts China at an advantage, saying antitrust concerns are “dwarfed” by the cost of holding back deals.

There’s a precedent for such arguments. When Northrop Grumman bought missile maker Orbital ATK in 2017 for $9.2 billion, the Federal Trade Commission approved the deal despite misgivings, in order to preserve “benefits” for the Department of Defense – which may prefer a stronger supplier than a more fragmented market. The DOD is also involved in reviewing Lockheed’s plans, working alongside an FTC that is now helmed by avowed merger-skeptic and Biden appointee Lina Khan.

In 2022, these arguments will spill out of the defense sector and into other industries where chief executives want to grow, and where China is a competitor or disruptor. Take microchips. American chip kingpin Intel was reported in 2021 to be in talks with rival GlobalFoundries, a deal that could vex U.S. antitrust watchdogs. But such a combination could also arguably safeguard supplies if tensions rise between China and chipmaking hub Taiwan. Even sectors like oil and gas could take the position that letting companies merge is a patriotic duty. If the M&A feast continues, expect China to be the ghost in attendance. Taiwan News