Intel, the prominent American microchip manufacturer, has abandoned its proposed $5.4 billion merger with Israel’s Tower Semiconductor. 

This development highlights the escalating strained business relations between the United States and China.

After a prolonged 18-month wait for Chinese regulators’ review, Intel has mutually agreed to dissolve the deal. 

This setback may shadow other American companies heavily invested in China due to the ongoing tensions between the two nations.

The merger, announced in February 2022, successfully cleared antitrust assessments in the U.S. and Europe but faced significant delays in China due to revenue-based regulatory evaluations.

China and the U.S. are engaged in a fierce economic rivalry, particularly concerning technology.

China’s displeasure stems from American-imposed restrictions on advanced chip sales to China, which have military applications. Additionally, President Biden recently banned certain investments in sensitive Chinese tech.

Although the countries remain economically interdependent, Intel is deeply engaged in China, employing over 12,000 individuals and generating $17 billion in revenue in 2022.

Intel aimed to leverage the merger with Tower to pivot towards becoming a primary microchip manufacturer for external designers. 

Historically, Intel’s factories produced chips it both designed and sold.

In contrast to giants like Taiwan Semiconductor Manufacturing Company, Tower’s chip manufacturing service is smaller. Intel is obligated to pay Tower $353 million as the merger fell through.

Intel’s failure to secure Chinese approval highlights a dilemma for multinational corporations: prioritizing operations in China or pursuing global mergers. Such concerns could discourage foreign investment in China.

The Chinese regulatory body responsible for global merger approvals, the State Administration for Market Regulation, faces scrutiny as a representation of China’s commitment to foreign investor market access.

Patrick Gelsinger, Intel’s CEO, sought to expand chip foundry services to qualify for U.S. government subsidies. He recently visited China to facilitate the Tower deal’s approval.

Intel microchip specializes in advanced processor production, while Tower excels in analog chip technology. Tower owns fabs in Israel, the U.S., Japan, and a joint venture in Italy.

In the face of these challenges, Gelsinger remains resolute, stating that Intel is committed to advancing its strategy.

This development underscores the intricate decisions multinational corporations might have to make between maintaining a foothold in China or pursuing global mergers.