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Why the Committee on Foreign Investment in the U.S. has been getting busier

Justin Ho May 7, 2024
Heard on:
Treasury Secretary Janet Yellen, who chairs the Committee on Foreign Investment in the United States, speaks at a conference in September. Alex Wong/Getty Images

Why the Committee on Foreign Investment in the U.S. has been getting busier

Justin Ho May 7, 2024
Heard on:
Treasury Secretary Janet Yellen, who chairs the Committee on Foreign Investment in the United States, speaks at a conference in September. Alex Wong/Getty Images

It’s been a couple weeks since President Joe Biden signed a bill into law that will require ByteDance, the Chinese company that owns the social media app TikTok, to sell it off by January or face an outright ban in the United States.

The case is a little unusual, because the details of deciding whether or not a foreign company can invest in a U.S. business, or own it outright, is usually left to the Committee on Foreign Investment in the United States, or CFIUS. 

The committee is made of representatives from a grab bag of government agencies with big national security responsibilities, including the departments of Defense and Homeland Security, and agencies with economic and commercial responsibilities, including the Commerce Department and the U.S. Trade Representatives’ office.

The committee’s goal is to look at foreign investment and figure out whether it raises any national security issues, said Emily Kilcrease, director of the energy, economics and security program at the Center for a New American Security. She used to be a staffer at the Trade Representative’s office and the Commerce Department, and has represented both agencies on CFIUS.

Then the committee will decide whether to make changes to the deal in order to assuage the government’s concerns.

“It’s kind of a flexible definition of national security, and it can take into consideration economic considerations, but it always has to come back to a national security risk,” Kilcrease said.

For example, a foreign company that wants to buy an American military supplier might present a national security risk. Kilcrease said there’s a wide range of transactions where the government might have national security concerns.

“Protection of critical infrastructure, including cybersecurity elements — that counts as national security,” Kilcrease said. “We’re worried about supply chains more broadly these days. So that would certainly be something that would be considered national security.”

The committee didn’t always have such a broad purview. It was first created in 1975 to study foreign investment at a time when U.S. was getting insecure about Japan. Japanese exports were taking off in the U.S. market, including cars, consumer electronics and semiconductors. Over the next decade and a half, Japanese investors also made a lot of investments in the U.S., including in real estate.

“Hotels in Hawaii, the Rockefeller Center was acquired by Mitsubishi Estate, so there was quite some concern that Japan was buying up the United States,” said Ulrike Schaede, a professor of Japanese business at the University of California, San Diego.

Schaede said trade frictions with Japan got hotter through the 1980s, especially after a number of Japanese companies tried to purchase American firms that supplied the military. So, in 1988, Congress made a big change to CFIUS: the Exon-Florio amendment.

“[The amendment] was specifically formulated to empower CFIUS to stop foreign acquisitions of U.S. companies,” Schaede said.

This allowed the president to jump in and block a transaction on national security concerns if CFIUS recommended it.

But by the early 1990s, Japan’s economy had faded.

“And with it went away the trade frictions between the U.S. and Japan,” Schaede said.

Fast forward to the 2010s, when China had emerged as a growing economic power. Rob Atkinson, president of the Information Technology and Innovation Foundation, said the U.S. started getting concerned about what might happen if a Chinese company bought an American one.

“Basically, they have the keys to the kingdom,” Atkinson said. “They can take all the technology, the patents, the knowledge, all of that, and they can move it over to China and build up their own industry.”

So in 2018, Congress expanded CFIUS’ power again with the Foreign Investment Risk Review Modernization Act, which allowed CFIUS to investigate smaller foreign investments, including venture capital. The committee can also block sensitive real estate deals, like if a Chinese company wanted to buy some land next to a military base.

In the time since, the number of deals under CFIUS review has been steadily increasing. The White House has only blocked a handful of deals in the last decade, but Kilcrease of the Center for a New American Security said the mere possibility of a CFIUS investigation can have a chilling effect.

“There’s even more cases where CFIUS has identified concerns, and the transaction parties decide that they’re just going to voluntarily abandon the deal, so to speak,” Kilcrease said. “And that isn’t always a public thing.”

CFIUS also has the option of recommending tweaks to the deal rather than blocking it outright.

One concern is whether the uptick in CFIUS investigations will cause foreign investment to slow down. That’s because foreign investment can be really beneficial, said Atkinson of the Information Technology and Innovation Foundation.

“The best kind of foreign investment for the United States is a company coming in here and building something, and saying, ‘We want to be here, we want to produce here, we want to hire American workers here,’” Atkinson said.

Those are the kinds of foreign investments that CFIUS should encourage, he said.

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