Summary
On Friday, February 21, 2025, President Trump issued his Administration’s America First Investment Policy (“AFIP”), and the White House released a corresponding Fact Sheet regarding the memorandum. The two documents provide direction to executive branch agencies and set forth the Administration’s policy on foreign investment and national security matters. In the clearest and most direct statement to date, that policy squarely equates national security and economic security. With that equivalence, it seeks to promote investment from ally and partner countries, including potentially through streamlined regulatory processes, on the premise that such investment can promote U.S. national and economic security objectives. At the same time, the policy clearly contemplates expansive use of executive authorities to curb investment from the People’s Republic of China (“PRC” or “China”) and other “countries of concern” in a broad segment of sectors identified as central to U.S. national security, while also limiting foreign adversary access to talent and technology in those same sectors. The policy also reflects an intent to seek to eliminate, rather than mitigate, risks related to Chinese involvement in strategic sectors of the U.S. economy; to limit or outright prohibit investment from U.S. parties in certain sectors in China; and to leverage foreign investor access to the U.S. market to dissuade foreign investors and U.S. companies alike from partnering with Chinese parties in core areas of national and economic security competition. The policy also indicates that purely passive capital will generally remain welcome in the United States.
For many foreign investors, this policy will be net neutral or positive. The Committee on Foreign Investment in the United States (“CFIUS”) already assesses foreign investors based on their investments in China and relationships with Chinese parties. The policy seems to suggest that CFIUS should seek to formalize this presently informal practice by setting out objective standards by which foreign investors will be judged, which may provide welcome guidance to foreign investors. In that context, it also reflects an intent to have a more transaction-friendly regulatory process, albeit one that more aggressively regulates commerce and transactional relationships with Chinese parties. At the same time, the AFIP clearly signals an intent to regulate more directly a variety of private sector transactions for national security reasons. The clear goal is to decouple, to the extent possible, the United States from China in areas the Administration deems central to national security. The message is unambiguous: expect expansive application of executive branch authorities to regulate commerce with China globally, with an objective of ultimately securing legislation to support such authorities—but with little appetite to wait for such legislation. As discussed below, while the policy intent is clear, exactly how quickly and extensively the contemplated regulatory changes and new authorities described in the AFIP will be implemented remains to be seen. It is one thing to announce a policy, and it is quite another to execute it with resources in place.
Discussion
With the foregoing as background, the following are key takeaways and themes that emerge from the AFIP:
- Economic security is national security. While the United States has been moving in the direction of equating economic security and national security for the last several years—and this also was embedded in the Biden Administration’s approach to national security—the AFIP makes this perfectly explicit: “[e]conomic security is national security.” It bears noting the rapid evolution on this front that occurred in the United States. Multiple legislative reforms of CFIUS since the original 1988 enactment of the “Exon-Florio” amendment to the Defense Production Act of 1950 had resisted outright equating economic security and national security. Through much of the 2010s, U.S. government officials stated publicly—and privately lectured allies—that the United States strictly applies CFIUS to national security matters, and views “economic security” as a code for protectionism, which, in turn, makes the process susceptible to politicization and manipulation by third parties. Today, by comparison, the representative offices of multiple CFIUS member agencies have “economic security” in their titles. While by no means a surprise, the fact that Trump Administration policy underscores that economic and national security are tethered to each other is a sharp reminder of the direction that the United States has taken on foreign investment issues.
- Categorical approaches to regulation are “in”; ad hoc regulation is “out.” The policy reflects a strong influence from hawks on the National Security Council who hold a view that national security risk with China cannot simply be mitigated, but rather should be eliminated to the fullest extent possible. This worldview does not necessarily embrace or call for an outright, across-the-board decoupling between the United States and China. It is, however, a belief that in a wide breadth of industries, strategic decoupling is essential to U.S. national and economic security and should be a guiding principle. Put another way, the risk tolerance in these areas is essentially “zero,” which, in turn, should drive sharper applications of legal tools. This view also is coupled with a more traditional conservative perspective that complicated regulation inhibits commerce and investment, and that the better approach to addressing China-related risk is to take more categorical approaches—which will feel more blunt to transaction parties, but also, at least in theory, be clearer for businesses to execute against.
Thus, for example, the AFIP suggests an intent to, among other things, (1) bar Chinese investment (other than—perhaps—truly small passive investment) in a wider range of sectors that intersect with technology or data (including personal and commercial data) that the national security authorities deem sensitive; (2) start regulating initial greenfield investments by, and organic expansions of, Chinese-owned businesses in the United States; (3) seek stronger controls, if not prohibitions, on investment and expansions in China; and (4) use sanction authorities under the International Emergency Economic Powers Act (“IEEPA”) to curb investment in Chinese companies.
On the other hand, the AFIP indicates an intent to “fast-track” certain investments from ally and partner countries “based on objective standards, to facilitate greater investment from specified allied and partner sources in United States businesses involved with United States advanced technology and other important areas,” by, among other things, expediting environmental reviews and reducing the use of indefinite mitigation tools. We discuss this aspect of the policy further directly below in the CFIUS context, but conceptually this type of preferred investment approach also fits with the more categorical view of regulation.
- Leveraging and expanding CFIUS as a tool both to facilitate more investment, and to bar non-passive Chinese investment in sensitive areas. As it relates to CFIUS specifically, the policy indicates that CFIUS should be a key tool in achieving the categorical approach described above. Specifically, it suggests that CFIUS will not mitigate transactions involving investors from China or other countries of concern, which implies that if there are any national security issues in those transactions, the transactions will simply be prohibited. In line with the “block rather than mitigate” categorical approach, the AFIP also suggests that CFIUS will prohibit non-passive investments by PRC-affiliated persons in “United States technology, critical infrastructure, healthcare, agriculture, energy, raw materials, or other strategic sectors.”
By contrast, for investors from ally and partner countries, including government-owned investors, the policy signals more favorable treatment, particularly—and explicitly—in investment in artificial intelligence and other emerging technologies. The policy specifically indicates that CFIUS’s processes will be reformed to include mechanisms to “fast-track” investments by allies and partners, and focus mitigation agreements (i.e., the conditions of CFIUS approval) on “concrete actions that companies can complete within a specific time, rather than perpetual and expensive compliance obligations.” There is, however, an important caveat: with respect to investment in sensitive areas—including “critical technology, critical infrastructure, [and] personal data”—access to a more streamlined process and fewer mitigation conditions “will ease in proportion to the [foreign investors’] verifiable distance and independence from the predatory investment and technology-acquisition practices of the PRC and other foreign adversaries or threat actors.” (Emphasis added.) In other words, CFIUS will continue to be a tool—and perhaps even more concretely one—used to encourage foreign investors to align with U.S. interests and distance their capital and commercial activities in sensitive areas from China.
Notably, the AFIP further indicates that the Administration intends to pursue a significant expansion of CFIUS’s authorities to address “greenfield” investments as well as “to restrict foreign adversary access to United States talent and operations in sensitive technologies (especially artificial intelligence), and to expand the remit of ‘emerging and foundational’ technologies addressable by CFIUS.” Exactly what form such an expansion would undertake, and how CFIUS, which is fundamentally a process focused on M&A and investment activity, could be deployed to address, in essence, human relationships (access to talent) and other non-investment commercial relationships is an open question. In the context of an M&A transaction subject to its jurisdiction, CFIUS already considers such relationships and commercial transactions. It is unclear whether the intent of the Trump Administration is simply to strengthen that existing focus (i.e., maintain the application of it strictly in M&A and investments subject to CFIUS jurisdiction) or instead to make CFIUS a regulator of employment relationships, research, and other business activities that are not tied to an investment.
- Expanding restrictions on investment in China and certain Chinese parties. One of the sharper messages in the AFIP is its articulation of an intent to create higher barriers to certain investment in China and Chinese parties. The policy states that the Administration will consider “new or expanded” restrictions on outbound investment, and expands the list of sectors that could be subject to such restrictions, including not only the three sectors currently covered (semiconductors, artificial intelligence, and quantum computing), but also “biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by the PRC’s national Military-Civil Fusion strategy.” In this sense, the AFIP signals a shift from the previous Administration’s “small yard, high fence” approach to a “bigger yard.” The policy also suggests the White House will play a central role in determining what should be covered, empowering the Office of Science and Technology Policy, which is an office within the Executive Office of the President, to review and update the sectors periodically. Moreover, the policy suggests that the Administration may more aggressively create categorical restrictions and target passive investment in identified sectors in China, stating that it will “consider applying restrictions on investment types including private equity, venture capital, greenfield investments, corporate expansions, and investments in publicly traded securities, from sources including pension funds, university endowments, and other limited-partner investors.” In addition to potential restrictions on investments in Chinese parties based on national security concerns, the AFIP calls for steps to “protect the savings of United States investors” from investment risks including through reviews scrutinizing and potentially restricting access to U.S. capital markets by certain Chinese companies.
While the Administration may seek legislation for these authorities, the AFIP signals that it will not necessarily wait for such legislation to take action. The AFIP specifically cites the use of the IEEPA—a statute that provides the President with broad authority to regulate transactions in the wake of declaring a national emergency to address national security risks—to “further deter United States persons from investing in the PRC’s military-industrial sector.” The AFIP suggests such deterrence may include reliance on more traditional sanctions tools, possibly including asset-blocking sanctions targeting certain Chinese entities or investment restrictions of the sort currently applied to entities on the Non-SDN Chinese Military-Industrial Complex Companies (“NS-CMIC”) list. A more aggressive use of IEEPA in this fashion, particularly with respect to asset-blocking, could be a potentially significant move towards decoupling.
- “Passive” investment seemingly welcome. The AFIP contains a strong, categorical statement that “[t]he United States will continue to welcome and encourage passive investments from all foreign persons.” This statement seems to suggest that strictly passive investments will continue to remain welcome, including from countries of concern. The policy further states that “passivity” includes “non-controlling stakes and shares with no voting, board, or other governance rights and that do not confer any managerial influence, substantive decisionmaking, or non-public access to technologies or technical information, products, or services.” Again, this seemingly would allow small passive investments from China even in potentially sensitive areas. Other statements in the policy, however, suggest that such small passive investments from China may be scrutinized or restricted. For example, one of the principles of the policy states that: “Investment at all costs is not always in the national interest, however. Certain foreign adversaries, including the [PRC], systematically direct and facilitate investment in United States companies and assets to obtain cutting-edge technologies, intellectual property, and leverage in strategic industries. The PRC pursues these strategies in diverse ways, both visible and concealed, and often through partner companies or investment funds in third countries.” It remains to be seen how CFIUS and other regulators will interpret and apply this guidance in connection with, for example, passive limited partner investments from Chinese parties in funds.
- Intent is clear, but implementation is more uncertain. Consistent with what we have seen from the Trump Administration in other areas, the policy reflects an expansive view of executive authority, and much of what it articulates does not require new authorities. For example, implementing a “fast-track” for CFIUS can be done without legislation, and executive orders to expand outbound investment review could be issued under IEEPA. At the same time, we expect that the Administration also will ultimately want to have legislation that supports its priorities, as such legislation will strengthen its position on any given matter against legal challenge. Moreover, expanding CFIUS to cover greenfield investment in all forms would require Congressional legislation. We expect favorable odds for legislation passing in the priority areas for the Administration, though that is not certain given the broader dysfunction in Washington.
Beyond the legislative point, it is not entirely clear how quickly the Administration can implement these efforts within agency processes. Thus far, agencies have been very aligned with Administration priorities, and we expect that will continue. At the same time, it will be several months, at least, before sub-cabinet political appointees are in place, and many of the articulated objectives for the Administration could require additional resources (e.g., an expansion of outbound investment review), which may be in tension with the announced and further expected attrition at agencies.
If you have any questions concerning the material discussed in this client alert, please contact members of our CFIUS practice.
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