Trump Administration Opts for Softer Approach on Chinese Investment in U.S

Charlene Craig
June 30, 2018

If Congress fails to pass the Act quickly, Mr Trump said he would use his executive authority to order new restrictions that could be applied globally.

The White House officials said the administration does not favor one bill over the other but believes Congress can deliver final legislation that is "strong and responsive" in protecting sensitive US technology.

However, Trump backed away from singling out China and instead supported broader measures that would apply to any country.

That review would be conducted through the existing Committee on Foreign Investment in the United States, or CFIUS. Trump has blocked two in six months.

"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."

At a weekly news briefing on Thursday, Chinese Commerce Ministry spokesman Gao Feng said China is closely monitoring the developments and assessing the potential impact on Chinese companies. While the House and Senate companion bills on CFIUS modernization need to be worked out, there is interest from Senator John Cornyn, the No. 2 Republican, in creating a list of countries of special concern. It's an interagency committee, commonly known as CFIUS, that doesn't come up much in casual conversation, not even in Washington.

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"We have a confusing message coming from our government", said David Kotok, chief investment officer of Cumberland Advisors, which manages $3 billion in assets.

Investment plunged more than 90% in the first five months of 2018 compared with the same period a year earlier, according to a report last week by Rhodium Group, a research firm that tracks Chinese foreign investment.

To further ensure a robust defence of American technology and intellectual property, I have also directed the Secretary of Commerce to lead an examination of issues related to the transfer and export of critical technologies, he said.

Officials insist the reliance on a modified CFIUS approach is not a retreat from tough restrictions on China.

Industry officials and trade experts applauded the decision to refrain from going after China specifically. "It avoids use of emergency powers, which would have created a new ad hoc and highly uncertain framework", said Robert Kahn, a professor at American University who previously worked at the World Bank and International Monetary Fund.

The CFIUS reform in Congress "was the result of extensive process of stakeholder engagement", Colvin told AFP.

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The decision marks a victory for Treasury Secretary Steven Mnuchin in a fierce White House debate over the scope of such curbs.

"For those who want to say this is being weak on China, the answer is no", Mnuchin said.

However, Wall Street completely reversed course in afternoon trade, after White House economic adviser Larry Kudlow's interview on the Fox Business Network.

The president agreed to the recommendation to soften his stance on Tuesday, Mnuchin told reporters. "The ball is in their court".

But it will likely do little to stop the activation of US tariffs on $34 billion worth of Chinese goods, scheduled for July 6, or jump-start trade negotiations between the two economic superpowers, Kennedy said.

Trump announced 25 per cent import tariffs on hundreds of Chinese products to pressure the country to alter its practices. Those tariffs are due to take effect July 6.

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The Trump administration will rely on Congress to produce legislation that would restrict new Chinese investments in USA technology companies, backing away from a earlier threat to issue specific restrictions on such investments in "industrially significant" areas of the US economy.

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