Sorry, the test is wrong. Use this:

test_description='Test merge with local conflicts in new files'
. ./test-lib.sh

test_expect_success 'prepare repository' \
'echo "Hello" > init &&
git add init &&
git commit -m "Initial commit" &&
git checkout -b B &&
echo "foo" > foo &&
git add foo &&
git commit -m "File: foo" &&
git checkout master &&
echo "bar" > foo &&
'

test_expect_code 1 'Merge with local conflicts in new files' 'git
merge "merge msg" HEAD B'

test_done
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