White House preps emergency law to halt Chinese investment
AS THE White House prepares to levy punishing tariffs on an array of Chinese goods, it is planning a much more strategic strike against China’s dominance in cutting-edge technology by restricting investment in American innovation.
The Trump administration is preparing to limit Chinese investment in sensitive US technology, ranging from microchips to 5G wireless technology, as it tries to prevent China from gaining an edge in industries projected to power the global economy for decades. After years of tough restrictions on US companies trying to operate in China, including coercing the transfer of proprietary technology, the White House is looking to subject China to similar investment hurdles in the United States.
To do so, the Treasury Department is considering using a powerful law generally reserved for national emergencies, according to administration officials. The 1977 International Emergency Economic Powers Act, which was used to place sanctions on other countries after the September 11 attacks, gives the president broad authority to respond to an “unusual and extraordinary threat”, including by halting incoming Chinese transactions, nullifying business deals and freezing foreign-owned assets.
Matt Gold, a professor at Fordham University School of Law, said the statute has allowed the United States to impose economic sanctions on nations like Iran and Sudan and tends “to involve restrictions on US firms investing in those countries or doing business with firms of those countries”.
Using the law to restrict investment from China would allow the president to “block transactions to move funds, dispose of assets or otherwise do business”, Gold said.
That would be a significant broadening of US power when it comes to foreign investment. The United States has broad export controls on sensitive technologies, and it reviews international mergers through the Committee on Foreign Investment in the United States, which can recommend that the president block foreign investments that pose a threat to national security.
But the International Emergency Economic Powers Act could expand that power to any type of investment, whether or not it poses a security risk, and allow the administration to potentially block a high volume of Chinese deals, which CFIUS does not have the resources to handle.
The US has already thwarted some Chinese investments, and the new rules could potentially prevent Chinese firms from investing in a wider range of deals. China invested about $45 billion in the United States in 2016, according to tracking by the research firm Rhodium Group, up from around $15 billion in 2015.
The White House, which has called China an “economic enemy”, wants to target the advanced industries Beijing has vowed to build up as part of its “Made in China 2025” plan. Those include electric vehicles, high-tech shipping and aerospace technology.
Investment restrictions would be the second stage, following tariffs, in a sweeping trade measure that aims to penalise China for what the United States deems unfair trade practices.
The administration is particularly concerned about investments in the United States made by Chinese statecontrolled enterprises that take intellectual property from US companies and export it to China.
A 2017 report from the US-China Economic and Security Review Commission, a group created by Congress to monitor relations between the countries, said Chinese investment in the United States had been strategically focused on infor- mation and communications technology, agriculture and biotechnology. This presents potential risks to American national and economic security, said the report, which noted that US companies lacked “reciprocal” treatment in China and that they had to disclose valuable technological information to gain access to the Chinese market.
“This would expand the current concept of what counts as national security, linking of national security and economic security,” said John P Kabealo, a lawyer who specialises in foreign investment matters. “It could very fundamentally change how international transactions are conducted.”
The Trump administration’s trade threats have rocked relations and business ties between the world’s two largest economies. Farmers, retailers and other industries that depend on trade with China have protested, saying the measures could damage their businesses and American jobs.
Chinese and US officials have quietly begun talks since President Donald Trump announced the trade measures last week. But it remains unclear what kind of compromise the Chinese could offer to avoid sanctions, and whether Beijing would be willing to pay such a price.
So far, China’s response to the potential trade action has been relatively muted, as it waits for the Trump administration to finalise its plans. The country did respond sharply to Trump’s earlier tariffs on steel and aluminium imports. China released a $3 billion list of goods it said it might charge with higher tariffs, including a 25 percent tariff on pork and aluminum scrap, as well as a 15 percent tariff on steel pipes, wine and ethanol.
In his March 22 announcement of the China trade measure, Trump said the Treasury Department would finalise the investment restrictions within 60 days. But the Trump administration is still determining how to carry out those restrictions.