In September 2017, President Donald Trump blocked Canyon Bridge Capital Partners’ attempted $1.3 billion acquisition of US chipmaker Lattice Semiconductor. The decision marked only the fourth time a president has blocked a corporate acquisition on national security grounds.

According to a White House statement, the deal was blocked because of concerns over “the potential transfer of intellectual property to the foreign acquirer, the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States Government, and the use of Lattice products by the United States Government.”

Canyon Bridge is a private equity firm based in California and funded solely by China Reform Holdings, an investment holding company controlled by China’s State Council with indirect links to the Chinese government’s space program. Canyon Bridge’s ties to the Chinese government attracted congressional attention, with 22 lawmakers writing to then US Treasury Secretary Jack Lew in December 2016 to voice concerns that the deal could disrupt US military supply chains and pose national security risks.

The deal also came amid heightened scrutiny of foreign acquisitions of US semiconductor firms. Since 2015, the Committee on Foreign Investment in the United States (CFIUS), which is tasked with reviewing foreign transactions for national security risks, has either outright rejected or caused investors to withdraw from at least seven deals involving Chinese companies, including the Lattice acquisition.

Although Lattice does not sell chips to the US military, it manufactures a type of military-grade microchip that its two biggest rivals, Xilinx Inc. and Intel Corp.’s Altera, sell to the US military, making Lattice’s acquisition a potential national security concern.

Canyon Bridge’s failed attempt to acquire Lattice began in November 2016, when the firm first announced the proposed deal and submitted the transaction for CFIUS review. In August 2017, CFIUS completed its review and recommended the president block the deal. Rather than withdraw the bid, Canyon Bridge and Lattice allowed the transaction to proceed to the presidential review stage,

hoping Trump would disagree with CFIUS’ assessment and approve the deal.

This was not the first time a Chinese firm has attempted to acquire Lattice’s technology. In 2004, Lattice paid a $560,000 civil fine for illegally exporting products to China. In 2012, two Chinese nationals were indicted for violating export controls after trying to smuggle Lattice chips to China. Four years later, Chinese state-owned chipmaker Tsinghua Unigroup purchased a six-percent stake in Lattice—around the same time China Reform Holdings first contacted Lattice about a potential deal—before selling off its shares a few months later, just weeks before the Canyon Bridge deal was announced in November 2016.

China’s efforts to acquire US semiconductor technology raise concerns that the Lattice acquisition was motivated by political factors (such as furthering industrial policies laid out by the Chinese Communist Party) rather than commercial considerations.

In November 2016, then US Commerce Secretary Penny Pritzker warned that the US semiconductor industry is “seeing new attempts by China to acquire companies and technology based on their government’s interests—not commercial objectives.” A January 2017 report from the US President’s Council of Advisors on Science and Technology also warned that China’s increased semiconductor investment represents “a concerted push by China to reshape the market in its favor … [and] threatens the competitiveness of US industry and the national and global benefits it brings.”

The Chinese government has made developing its semiconductor industry a key priority of its industrial policy, seeking to enhance the global competitiveness of its domestic semiconductor firms and reduce its reliance on foreign semiconductor imports. Chinese firms have leveraged this state funding to attempt to acquire or invest in at least 27 US semiconductor firms since 2013.