The Difference Between National Security and Foreign Competition

COMMENTARY Asia

The Difference Between National Security and Foreign Competition

Nov 20th, 2019 2 min read

Commentary By

James Jay Carafano @JJCarafano

Vice President, Kathryn and Shelby Cullom Davis Institute

Riley Walters

Policy Analyst, Asia Economy and Technology

When Trump blocked Chinese state owned investors from purchasing an American semiconductor manufacturer, it showed how committed his administration is to the CFIUS process. Drew Angerer / Staff / Getty Images

Key Takeaways

Our open investment environment fosters competition and innovation that has built some of the most successful products and companies in the world.

CFIUS exists not to block all Chinese investment, but to separate out the good investments from the potentially bad ones.

Turning CFIUS into a tool for state competition would be a terrible mistake and undermine so much of the work the administration has done for the economy.

Other countries have directly invested $4.3 trillion in the United States, making it the top destination for investment in the world. That is good for our economy and foreign investors. Our open investment environment fosters competition and innovation that has built some of the most successful products and companies in the world. Over the past few years, however, there has been growing concern that, in the process of making the most of American competitive market, some investments, particularly some Chinese investments, could also damage our national security.

It is a well founded concern. That is why we have the Committee on Foreign Investment in the United States. Congress created CFIUS years ago to review proposed foreign investments that cause alarm and to make a determination based on the facts of whether the deals would actually jeopardize our national security. The committee currently reviews more than 1,000 potentially threatening investments each year. Chinese direct investment only makes up roughly 1 percent of all foreign direct investment in the United States, but more than 20 percent of the investments that CFIUS reviews are from Chinese entities.

Chinese investment is not without its benefits. Chinese direct investment supports more than 80,000 jobs in the United States. Chinese investors are willing to pay top dollar to acquire American companies that are up for sale. Many Chinese investors are willing to give American technology startups, desperate for cash, the money they need. Like most investors, the Chinese are simply looking to profit big from the next Apple.

CFIUS exists not to block all Chinese investment, but to separate out the good investments from the potentially bad ones. It was not created to bar foreign competition or to give American companies a hand up. Reforms last year have allowed CFIUS to focus more on Chinese investments in critical emerging technologies, with the intent of protecting our strategic innovations. Already, any Chinese state owned company looking to buy its way into the United States is automatically reviewed.

Given how critical the Trump administration has been of Beijing and Chinese trade practices since coming into office, many thought his administration would turn CFIUS into a political tool to punish China. But when President Trump blocked Chinese state owned investors from purchasing an American semiconductor manufacturer in 2017, it showed how committed his administration is to the CFIUS process.

Still, some in Washington, like those at the Coalition for a Prosperous America, would like to see the administration use opaque groups like CFIUS to pursue an all out, statist campaign against China. Others appear to want to use the committee for political purposes. Some, like the Economic Policy Institute, would prefer to use CFIUS for protectionist reasons. Even White House trade advisor Peter Navarro has previously argued that economic security is national security.

Attempts to use CFIUS for such off the mark purposes are nothing new. Previous efforts to broaden the scope of CFIUS beyond national security needs have included trying to block foreign investments over issues like job security, wage security, and net economic benefits. The United States national security apparatus, however, is not and should not be used to regulate a minimum wage or employment quota.

CFIUS reviews investments from dozens of countries, including from our friends and allies in the United Kingdom and Japan. Many of these investments should be welcomed, but they can be possible only if CFIUS can manage its increasing workload. It will not be able to do that if the process is bogged down with evaluating issues unrelated to national security. The same goes for any investments from China.

Were CFIUS to take on much more, it would not only drain its limited resources for the wrong reasons, but also delay and possibly lose investments the United States should want. Some of those investments will indeed come from China. Just because the money comes from Chinese investors, however, does not necessarily make it bad.

Luckily, the Treasury Department has been doing a good job at managing CFIUS and the real threats from Chinese investments. Turning CFIUS into a tool for state competition would be a terrible mistake and undermine so much of the work the administration has done for the economy.

This piece originally appeared in The Hill on 9/20/19