Foreign investors wanted, but security comes first

The United States is a great place to do business. Foreign companies invested $457 billion in 2017 in new or expanded enterprises. They employ nearly 7 million U.S. workers.

But the United States also wants to ensure a foreign acquisition doesn’t threaten national security.

To prevent that from happening, a group of top federal officials reviews certain prospective deals each year to ensure an acquisition would not give a foreign power critical U.S. technology.

In most cases, proposed transactions are allowed, although sometimes with modifications to ensure that nothing sensitive falls into the wrong hands.

Bar graph showing number of CFIUS reviews from 2013 to 2017 (State Dept.)
(State Dept.)

The Committee on Foreign Investment in the United States (CFIUS) is headed by the secretary of the treasury. It includes other Cabinet secretaries, the U.S. trade representative and the director of national intelligence.

Ultimately, it’s the president’s call. President Trump on March 12 blocked Singapore-based Broadcom’s $117 billion purchase of Qualcomm, a chip maker developing superfast 5G (fifth generation) wireless communications.

Presidents rarely block acquisitions outright. It’s only happened three other times.

President Obama prevented a Chinese company from buying a U.S. wind-energy farm near a defense facility in 2012 and blocked a Chinese investment firm in 2016 from buying a German-based supplier to the semiconductor industry.

In 2017 Trump barred Chinese investors from purchasing an Oregon semiconductor company.

Chart showing deals President Obama blocked in 2012 and 2016 and President Trump blocked in 2017 and 2018 (State Dept.)
(State Dept.)

In January, Ant Financial, the online payments company owned by the Chinese Alibaba Group, dropped plans to buy MoneyGram, a U.S. company, rather than meet restrictions CFIUS demanded.

Companies notify CFIUS about prospective deals and submit information the panel demands. After an initial 30-day review, CFIUS must complete investigations within 45 days.

President Ford created the panel in 1975 during the oil crisis. It operated without fanfare until 2005, when a Dubai company sought to take over management of six major U.S. ports. The committee eventually approved that deal, but the Dubai firm sold the business to an American buyer.

Congress passed a law in 2007 strengthening the committee. Currently, both the Trump administration and lawmakers are pushing for more changes to stop technology transfers.

Ten countries hold more investments in the United States than China, but in recent years the committee has reviewed more acquisitions by Chinese companies than any other.

“We must … ensure that bad actors do not get American technology or information that can be used against us” without discouraging non-problematic investments, a Kentucky congressman, Andy Barr, said at a recent hearing on Capitol Hill.

The government seeks to strike a balance between protecting national security and encouraging foreign companies to invest and create jobs in the U.S.

Lawmaker Dennis Heck from Washington state said, “Let’s be frank: there are strategic competitors who want what we know. …. [It’s] important to keep the other guys from cheating and [to protect] ourselves from underhanded trade.”