Foreign investment regulation
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Foreign investment monitor Q2
Joe Biden is pursuing a two-pronged approach to Beijing – spending to boost US competitiveness and aggressively using CFIUS and other authorities to limit China’s ambitions. But while the latter borrows from the Trump playbook in some respects, there are important policy differences between the two administrations on foreign investment.
Many of the measures pursued by the Trump administration to address the perceived threat from China focused on limiting Beijing’s ability to acquire technology (whether through ordinary trade, buying US companies, or surreptitiously) and/or to introduce Chinese technology into critical US supply chains. These included a significant expansion of the reach and resources of the Committee on Foreign Investment in the United States (CFIUS), more aggressive use of export controls and sanctions, and the introduction of new authorities to regulate the US supply chain. There has long been consensus in Washington policy circles, however, that the other critical component to a China strategy involves rebuilding the capacity of US industry to compete.
The current US government (both Congress and the Biden administration) has now largely shifted focus to this ‘run faster’ approach, precipitated by the healthcare and industrial supply chain challenges that arose during the COVID-19 pandemic. It is also being driven by an unusual alignment of bipartisan interests in Washington, with Democrats eager to build economic strength through federal investment and Republicans elevating concerns about competition with China over their traditional skepticism of government spending.
In one of his early high-profile moves, President Biden ordered a 100-day study of critical supply chains. The report, released in early June, focuses heavily on domestic investment as a means to overcome these challenges. Just days afterwards, the Senate overwhelmingly passed legislation that would direct almost $250bn over five years into the development and manufacturing of advanced technologies in the United States.
The Biden investment plan is driven in part by the challenges faced by the US healthcare supply chain during the COVID-19 pandemic.
Does this mean that aggressive use of CFIUS and other regulatory authorities to target China is likely to subside? Probably not. While the Biden administration has not announced any major new policy initiatives in this regard, it made clear that it intends to take an aggressive and deliberate stance. For example, it allowed rules issued in the last days of the Trump administration to go into effect that give the Commerce Department the authority to review transactions that would place Chinese information and communications technology and services (ICTS) in the US supply chain. While President Biden rescinded President Trump’s orders prohibiting transactions with TikTok and WeChat, which had been put on hold by courts, he made clear that connected software applications are to be scrutinized under the new ICTS rules. The White House has also previously confirmed that Trump’s CFIUS-related order that ByteDance divest its interest in TikTok is subject to ongoing discussion between CFIUS and the companies.
While CFIUS is unlikely to see any further significant structural changes in the foreseeable future, it can be expected that the concept reflected in the White House supply chain study – and the Senate legislation – that industrial competitiveness is a national security priority will infuse CFIUS deliberations and broaden the type of transactions that could draw CFIUS scrutiny and mitigation. However, in a clear departure from the voices in the Trump White House that expressed skepticism over the value of foreign investment, the Biden administration also in June reaffirmed that it shared the view of numerous Republican and Democratic administrations before Trump that, where a transaction does not raise national security concerns, the US welcomes and values foreign investment. Given his continued strong stance on China security issues, this is a useful clarifying message.
Please get in touch with us or your usual Freshfields contact if you would like to discuss these or any other regulatory issues in more detail.