President Trump Targets Chinese Investments in the United States

On Wednesday, President Trump issued a statement in support of restrictions on Chinese investment in the United States in firms with critical technologies, and in greater protection of those technologies through enhanced export controls. In particular, the President has thrown his support behind the Foreign Investment Risk Review Modernization Act (FIRRMA), bipartisan legislation that passed in the House on Tuesday. FIRRMA intend to strengthen the existing Committee on Foreign Investment in the United States (CFIUS) by expanding the scope of foreign investment restrictions that the Administration could block for national security reasons.

CFIUS is an inter-agency committee that has jurisdiction to review transactions that could result in control of a U.S. business by a foreign person If CFIUS determines the transaction presents a national security risk, it can take action to mitigate the risk or refer the case to the President for further action. The reforms under FIRRMA would expand CFIUS’s jurisdiction to review foreign minority investments in start-ups in key sectors, certain sensitive real estate transactions, and joint ventures – all of which are currently not subject to examination. The FIRRMA bill passed in the House specifically notes that the national security risks related to foreign investment, particularly those emanating from countries such as China and Russia, warrant an appropriate modernization of the processes and authorities of {CFIUS}.” FIRRMA would also expand existing export controls that govern trade in sensitive technologies.

President Trump’s statement this week comes after a May 29, 2018 statement from the White House regarding the implementation of investment restrictions on China. Press reports and statements by Administration officials had suggested significant increased investment restrictions that may apply to more countries than China. While the FIRRMA amendments that President Trump now supports are not limited to China, his June 27th statement ties backing of the legislation directly to the recent Section 301 action in response to China’s unfair trading practices with respect to U.S. intellectual property and technologies.

The White House statement this week also indicates that President Trump may take alternative action if FIRRMA is not passed by Congress. That could include an executive order that would ban companies with at least 25 percent Chinese ownership from U.S. investment, and would restrict companies with an even lower threshold of Chinese ownership from gaining a board seat on a U.S. company or obtaining access to certain technology through a merger or acquisition of a U.S. firm.