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