Amid Fears of Chinese Influence, the Committee on Foreign Investment in the United States Has Grown More Powerful

This amendment empowered the committee to not just review foreign investment deals but also to recommend rejecting them. Acting on its recommendation, a U.S. president could block a foreign transaction on “national security” grounds. For instance, in 1990, President George H. W. Bush voided the sale of MAMCO Manufacturing, which made metal parts for airplanes, to a Chinese agency, ordering the China National Aero-Technology Import & Export Corporation to divest itself of the Seattle-based company.

In the context of a committee review, the term national security typically refers to foreign transactions that could cause significant outsourcing of jobs, a loss of control over agricultural supply chains, the sharing of sensitive technologies, control of a firm that satisfies defense needs, or the impairment of critical infrastructure.

Strengthening the Committee
In 2006, Dubai Ports World, owned by the United Arab Emirates government, was about to gain managerial control of six U.S. ports in a major deal. Because of terrorism-related concerns, Sen. Chuck Schumer led a campaign against this proposal and the transaction was eventually called off, even though it had initially been approved by both the committee and President George W. Bush.

In the aftermath of this controversy, lawmakers passed the Foreign Investment and National Security Act in 2007, giving Congress greater oversight of the committee to ensure that potential acquisitions were adequately reviewed. In addition, it required the committee to scrutinize all foreign investment deals in which the pertinent overseas entity is either owned or controlled by a foreign power.

National Security Concerns
Over time, the Committee on Foreign Investment has been given more power to reflect and act on the political and economic concerns of the U.S.

China, for example, appears to have global ambitions to replace the U.S.-led world order. As it gains geopolitical power, China has come under increased scrutiny by the U.S., with public support to get tough with China on economic issues. In response to these concerns, concrete steps have been taken by U.S. lawmakers to increase the scope of what the committee is able to do.

In 2018, President Donald Trump signed the Foreign Investment Risk Review Modernization Act, giving the committee new powers over certain types of foreign investment that affect many Chinese investors. In the two-year period after the passage of the act, transaction registrations from Chinese investors fell by 43%.

In 2022, President Joe Biden signed an executive order directing the committee to sharpen its investigation of foreign investment deals that could negatively affect cybersecurity, quantum computing, biotechnology and sensitive data. The Committee on Foreign Investment is now more powerful than it has ever been, and it is a gatekeeper on major foreign investment deals.

The U.S. is not alone in examining foreign investment deals for national security implications. In recent times, the United Kingdom, the European Union and Australia have either created or strengthened existing regulations to more carefully police foreign investment deals, particularly those originating in China.

It remains to be seen what the long-term implications of these expanding powers of the Committee on Foreign Investments in the U.S. will be.

Amitrajeet A. Batabyal is Distinguished Professor, Arthur J. Gosnell Professor of Economics, & Interim Head, Department of Sustainability, Rochester Institute of Technology. This article is published courtesy of The Conversation.