Last Wednesday, the Trump administration set a new regulation that investors in 27 industries would face tougher scrutiny by an inter-agency panel led by the US Treasury Department, which begins tightening foreign investment rules as part of a pilot program.

According to the new regulation, the Committee on Foreign Investment in the United States (CFIUS) reviews mergers and stock purchases to ensure that they do not harm US national security. It was strengthened by legislation in the National Defense Authorization Act and was signed into law in August.

Investments in 27 industries, including telecommunications, semiconductors and so forth, will be required to be reported to CFIUS if the foreign investor's role would allow access to non-public information or afford the power to nominate a board member or make other substantial decisions. CFIUS will have the option to approve it within 30 days or open a fuller investigation.

 A SEARS home appliance showroom in Houston, Texas, October 17, 2018. /VCG Photo.

An official for the US Department of Treasury said the “agency” in the new regulation was not targeting any country. However, considering the current situation of the “World War of Economy and Trade” that was launched by President Trump himself, the international community has ample reasons to guess the potential victims of this new institutional arrangement in investment. As reported, much of the panel's highest-profile work focuses on Chinese companies, many with government links, and has tried to buy US high-end semiconductor makers and other tech companies.

US-China Investment Relationship at a Crossroad

Now it is sad to admit that the investment relationship between the United States and China is at a crossroad. Some observers even call this a US-China trade and investment cold war, which, as they emphasized, are growing signs of “decoupling” of these two giants across the Pacific Ocean.

In the US, in addition to tariffs, the Trump administration is dramatically increasing scrutiny on Chinese investment through CFIUS and export controls, and also are weighing restrictions on visas for Chinese merchants, students and researchers, banning Chinese telecom equipment companies from US supply chains, sanctions, and pressuring US companies not to engage in joint research or various forms of profitable investment in China. 

The White House has also banned Chinese investment in the US, especially in high-technological areas, by the same excuse of “national security.”

VCG Photo

An influential Foreign Affairs article penned early this year, by Kurt Campbell and Ely Ratner, may reveal the real strategic considerations of Trump, beyond the diplomatic parlance that we have reviewed above. Campbell and Ratner chalk up nearly 50 years of engagement with China to a complete failure. 

“Neither carrots nor sticks have swayed China as predicted,” the two senior US official-diplomats explained and complained. As such, this pessimistic expectation of China assisted in souring the country's mood towards technological cooperation, which mirrors an “overall shift” in thinking towards the US-China relationship.

The Self-harming Decoupling Trend

Although there are real challenges in this bitter bilateral relationship, decoupling will undoubtedly harm the future of global innovation, supply chains, economic development, as well as peace and stability in a way that is in neither side's interests.

As reported, the pilot program of the new regulation is scheduled to begin on November 10 and run for more than a year, during which formal, permanent rules implementing the legislative changes will be written. What is more, CFIUS has taken a tough stance against Chinese or other foreign investment in sensitive industries, ranging from high-end semiconductors to real estate.

There are a number of “achievements” that CFIUS acquired. For example, in August, CFIUS ordered Chinese conglomerate HNA Group Co Ltd to sell its majority stake in a Manhattan building whose tenants include a police precinct tasked with protecting Trump Tower.

And in March, US President Donald Trump blocked high-end chip maker Qualcomm Inc from being taken over by rival Singapore-based Broadcom Ltd, citing CFIUS's concerns over a loss of US dominance in the latest generation of wireless technology.

US President Donald Trump speaks during a roundtable discussion on the Foreign Investment Risk Review Modernization Act in the Roosevelt Room of the White House on August 23, 2018. /VCG Photo.

But a vital question here is: whether those measurements and regulations made by CFIUS and other US agents can either protect American national security or bring economic benefits to the local level, who once supported Trump in the presidential election 2016.

The answer is negative. First, as many economists and scientists assert, the decoupling of trade and investment hurts jobs, innovation, and prosperity because of the high level of US-China interdependence.

Second, innovation, trade and mutual investment are not zero-sum indeed. Now there are more than four percent of Chinese exports produced by foreign-invested firms, many of which are either owned by Americans or American subcontracted. 70 to 80 percent of high-tech exports involve foreign-invested firms, including but not limited to semiconductor supply chain. In fact, US companies rely on China for finishing, packaging and so on. Therefore, the tariffs are a “tax on ourselves” as they complained at the hearing.

As a result, it is safe to say that there is an urgent need for a new roadmap in managing the China-US relationship and creating a new type of great power relations in economy, security, and investment.

Copy Editor/Zu Chuang

Editor/Kang Sijun

Author: Wang Peng is a fellow at the Charhar Institute.
Source: CGTN, 2018-10-18
Original Link: https://news.cgtn.com/news/3d3d774e3551544f7a457a6333566d54/share_p.html