Jun 28, 2018 10:11 AM

Trump Softens Approach to Restricting Chinese Investment in U.S.

(Washington) — The Trump administration backed away from a threat to apply controversial new restrictions on Chinese investment in the U.S., instead opting to work within an existing Treasury Department framework to review such investments.

President Donald Trump’s shift on the market-moving issue came after a global stock selloff Monday triggered by an exchange of hawkish new trade threats between the world’s two largest economies.

In a statement Wednesday morning, Trump said he supports a legislative approach by Congress to expand the authority of the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign investment for security threats.

“I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said in the statement.

The CFIUS, an interagency panel led by the Treasury Secretary, is able only to suggest recommendations to the president on whether to block proposed foreign investment for national security concerns, but presidents in the past have often heeded its advice.

In the past, CFIUS reviews, or sometimes just threatened reviews, have halted Chinese purchases of U.S. semiconductor companies.

In February, Xcerra, a Massachusetts-based provider of tests and equipment to the semiconductor and electronics manufacturing industries, withdrew from its $580 million sale to an investment group backed by a Chinese government-controlled fund because the deal was not likely to be approved by the CFIUS.

The new legislation, called the “Foreign Investment Risk Review Modernization Act” (FIRRMA), would require the CFIUS to evaluate entire sectors, rather than individual proposed deals, for potential security threats. It would also give the committee more power to monitor whether overseas joint ventures and other partnerships are improperly transferring critical technologies to foreign companies.

Trump urged Congress to pass “a strong bill as soon as possible” but said he would be prepared to “deploy new tools developed under existing authorities” if lawmakers fail to do so.

Though neither the new legislation nor Trump specifically named China as the target, several lawmakers have repeatedly mentioned that Chinese acquisitions of U.S. technology companies make the bill’s passage necessary.

“To circumvent CFIUS review, China will often pressure U.S. companies into arrangements such as joint ventures, coercing them into sharing their technology and know-how,” Senator John Cornyn, a Republican co-sponsor of FIRRNA, said in March. “This enables Chinese companies to acquire and then replicate U.S.-bred capabilities on their own soil.”

Opponents counter that the bill’s changes would be too broad and get the government too involved in private economic decisions in a way that fails to truly protect national security.

“If the U.S. wants to change Chinese investment behavior, the U.S. Trade Representative, the Department of Commerce, and the White House should jointly lead the effort,” Georgetown University professor Theodore H. Moran wrote for the Brookings Institution. “Using CFIUS on a case-by-case basis to try to change Chinese approaches to industrial policy would be neither efficient nor effective.”

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