Download full Board Memo 2021
Among the tools that the Trump administration used boldly was its authority to prohibit transactions or constrain trade on national security grounds. In his four years in office, President Trump ordered more deals blocked or unwound using CFIUS authorities than was the case in the preceding 30 years; imposed steel and aluminum tariffs on imports from friend and foe alike using national security authorities; and issued numerous national security-justified executive orders and regulations directly or indirectly targeting China that had material impact on a broad range of US businesses.
In a Biden administration we are not likely to see actions that characterize allies as national security threats, or a government reduced to chaos by a teenage lip-syncing app. But one thing is clear: China will remain a significant focus for the national security and foreign policy makers (including the members of CFIUS) in the new administration, often with material direct or indirect impact on US companies.
For domestic businesses that produce advanced technology or have access to sensitive personal data, CFIUS will almost certainly continue to serve as a significant impediment to deal-making with Chinese companies. There may be changes around the margins where CFIUS will approve some transactions with heavy mitigation as opposed to blocking them outright, or where the government opts for what it calls a “run faster” (domestic investment) strategy to bolster US technological competitiveness rather than seeking to deny China capabilities. However, the focus on China will continue to impact not just direct investment from China, but US and foreign companies that either engage in business in China or that rely upon goods made in China, where the US government sees those activities as posing national security risks. This means that acquisitions even by companies from allied countries risk heavy scrutiny over their links to China.
Furthermore, these considerations do not stop at US borders. The Trump administration, notwithstanding its many steps that created divisions with allies, lobbied them aggressively on China-related priorities. These met with varying levels of receptivity, but four years later – perhaps as much because of Chinese practices than any pressure from the US – many allies are beginning to see China through a similar lens when it comes to technology and infrastructure security. Beyond Huawei, one major by-product of this is that many countries have introduced or reinforced CFIUS-like foreign investment review regimes, a trend only accelerated by concerns over opportunistic acquisitions during the COVID-19 pandemic. Importantly for US boards, investments by US companies are subject to these reviews as well, and sometimes emerge only after lengthy investigations and under conditions imposed on the transaction.
The extent to which the United States (and its allies) “de-couple” from China remains to be seen. The strategic tension between Washington and Beijing, however, is likely to continue to be a driver of government regulatory actions on all sides that could dramatically affect trade and investment flows globally in the coming years.