Power to block foreign investment grows
WASHINGTON — The Trump administration will begin cracking down on foreign investment in sensitive U.S. industries like technology and telecommunications, saying Wednesday that it will start using new powers that give the United States greater authority to review and block Chinese and other international transactions that pose a threat to national security.
The expanded review system, which Congress passed into law this summer, will apply to a wide array of foreign transactions but is aimed primarily at China, which the administration has accused of trying to gain an unfair edge by acquiring valuable technology through investments or partnerships with U.S. companies.
“These temporary regulations address specific risks to U.S. critical technology,” while working toward implementing the Foreign Investment Risk Review Modernization Act, Treasury Secretary Steven Mnuchin said.
The toughened investment policy is the latest attempt by President Trump to punish Beijing over its trade practices, including cyberespionage and a pattern of pressuring U.S. technology companies doing business in China to hand over valuable trade secrets. It comes on top of tariffs that the United States has placed on $250 billion worth of Chinese imports, and it is expected to exacerbate tensions between the world’s two largest economic powers, which have engaged in increasingly harsh exchanges.
Chinese officials canceled a trip to Washington late last month to resume trade talks after Trump moved ahead with a round of tariffs on $200 billion worth of Chinese goods. On Monday, China’s foreign minister, Wang Yi, chided the Trump administration for “ceaselessly elevating” trade tensions and “casting a shadow” over relations between the two countries. Secretary of State Mike Pompeo, who was visiting Beijing for talks, said the United States has a “fundamental disagreement” with China on the issues that it raised.
The administration’s trade measures have already chilled Chinese investment in the United States, which fell more than 90 percent from the first half of 2017 to the first half of 2018, to its lowest level in seven years, according to Rhodium Group.
The Treasury Department said Wednesday that it will begin a pilot program using new powers under the Foreign Investment Risk Review Modernization Act. The law expands the purview of the Committee on Foreign Investment in the United States, an interagency panel led by the Treasury Department that can block acquisitions on national security grounds, and the department is moving swiftly to take advantage of its new tools.
Until now, only takeovers and controlling stakes in U.S. companies could be reviewed. Under the pilot program, the committee will be able to review a much wider array of deals, including joint ventures and smaller investments by foreigners in U.S. businesses that make technology deemed critical for national security reasons.
Beginning Nov. 10, the panel can review — and block — a deal if a foreign investor takes a stake in a business that makes sensitive technology and if that investor gains potential access to nonpublic technical information or can engage in substantial decision-making over the company, such as getting a board seat.
The expanded review system will apply to businesses that design or produce technology related to 27 industries, including telecommunications, semiconductors and computers. Foreign investors will be required to submit declarations notifying the panel of their intentions when making a bid. If they fail to do so, they could be assessed a fine up to the value of the transaction.
In a briefing with reporters Tuesday, senior Treasury Department officials emphasized that the program would not be focused on China and would apply to any foreign investors. But the White House has been looking for ways to prevent China from harnessing U.S. technology in critical sectors, such as the next generation of wireless technology known as 5G, and it has taken aim at China’s plan to dominate cutting-edge industries, known as Made in China 2025.
According to Public Citizen, a liberal advocacy group and think tank, 56 percent of Chinese investments in the United States last year were in industries that Beijing defines as “strategic,” such as aviation, biotechnology and newenergy vehicles — up from 25 percent in 2016.
The law, which passed with bipartisan support, gave the Treasury Department 18 months to develop rules to implement the panel’s new powers, but the program announced Wednesday will allow the law’s provisions to be put in place more quickly.