In a move coming hot on the heels of the demise of the Qualcomm-Broadcomm deal attempt, the Treasury Department has announced that it will begin implementing provisions that will allow the Committee on Foreign Investment in the United States (CFIUS) to further monitor – and if deemed necessary, veto – foreign efforts to invest in American companies. The pilot program, which begins November 10, is intended to curtail the ability of foreign companies to acquire information on “critical technologies” that might impact national security. While previous statutes only allowed for the blocking of takeover attempts, the new powers allow even “non-controlling” stakes to be subject to review. These new powers were allowed for by the Foreign Investment Risk Review Modernization Act (FIRMMA), which was signed into law in August.
While the Treasury did not mention China specifically* in its announcement, it is clear that China is the intended target of this policy. This policy is being implemented at a time when economic relations between the US and China are being severely tested. Not only has the ongoing trade war between the two countries been dominating headlines, but this week also saw the extradition to the US of a Chinese spy wanted on charges of economic espionage**, and continued clashing over both the authenticity and the implications of last week’s Bloomberg report on alleged Chinese interference in the computer hardware supply chain. These tensions are reflective of the broader strategic competition that has defined the rapidly-deteriorating relationship between the two countries, and that has led to increased naval posturing in the South China, increased intelligence-sharing on China between the US and key allies, and the naming of China as a “strategic competitor using predatory economics” in the latest US National Defense Strategy.
It is unclear how broadly the Treasury will apply the metrics of “critical technology, infrastructure, material, or energy assets”, but the zealousness of this administration to combat China through economic means would seem to indicate that for the time being, a wider purview should expected. Industries directly named in the legislation include cybersecurity and aviation, but the industries that will end up being subject to scrutiny are anticipated to include computing and transportation more broadly, as well as energy, weapons manufacturing, infrastructure, and industrial chemistry.
The empowering of CFIUS in this way represents the degree to which national security has taken precedence over free trade as the key priority of American policy towards China. As a result of this value shift, speculation is justified as to whether the deep connection between the two economies, labelled by some as “Chimerica”, has reached its high-water mark and is now beginning to recede. For the Chimerica relationship to remain healthy would require an easing of political tensions between the two nations that, though far from impossible, seems unlikely without a significant reversal of current trends. While a planned November meeting between President Trump and Chinese leader Xi Jinping offers a chance for reconciliation, it is unclear how even the most affable of rapprochements could ease concerns about supply chain security, espionage, intellectual property theft, tensions in the South China Sea, technological competition, and military dominance among other issues. Without strong concessions from the Chinese on these and other fronts, it is unlikely that the United States will alter its current policy towards the country.
The Treasury Department’s greater oversight of foreign investment is a result of the strategic rivalry between the US and China, but it also accelerates the trend by which great power competition is supplanting global market integration as a defining feature of the international order. In such a global order, many more such restrictions and oversights would exist, and if current trends continue, such a global order is the one that will come to exist.
*While the Treasury does not name China in its announcement, the legislation for FIRMMA requires that the Secretary of Commerce submit a detailed report every two years detailing the nature of Chinese investment in the US.
**The operative, an officer with the Chinese Ministry of State Security, was not handed over by China, but was captured in Belgium before being sent to the United States. It is believed that this is the first time a Chinese spy has ever been extradited to the US.
