Why the Committee on Foreign Investment in the US Has Been Getting Busier

... trade frictions with Japan got hotter through the 1980s, especially after a number of Japanese companies tried to purchase American firms that supplied the military. So, in 1988, Congress made a big change to CFIUS: the Exon-Florio amendment.

“[The amendment] was specifically formulated to empower CFIUS to stop foreign acquisitions of U.S. companies,” Schaede said.

This allowed the president to jump in and block a transaction on national security concerns if CFIUS recommended it.

But by the early 1990s, Japan’s economy had faded.

“And with it went away the trade frictions between the U.S. and Japan,” Schaede said.

Fast forward to the 2010s, when China had emerged as a growing economic power. Rob Atkinson, president of the Information Technology and Innovation Foundation, said the U.S. started getting concerned about what might happen if a Chinese company bought an American one.

“Basically, they have the keys to the kingdom,” Atkinson said. “They can take all the technology, the patents, the knowledge, all of that, and they can move it over to China and build up their own industry.”

So in 2018, Congress expanded CFIUS’ power again with the Foreign Investment Risk Review Modernization Act, which allowed CFIUS to investigate smaller foreign investments, including venture capital. The committee can also block sensitive real estate deals, like if a Chinese company wanted to buy some land next to a military base.

In the time since, the number of deals under CFIUS review has been steadily increasing. The White House has only blocked a handful of deals in the last decade, but Kilcrease of the Center for a New American Security said the mere possibility of a CFIUS investigation can have a chilling effect.

“There’s even more cases where CFIUS has identified concerns, and the transaction parties decide that they’re just going to voluntarily abandon the deal, so to speak,” Kilcrease said. “And that isn’t always a public thing.”

CFIUS also has the option of recommending tweaks to the deal rather than blocking it outright.

One concern is whether the uptick in CFIUS investigations will cause foreign investment to slow down. That’s because foreign investment can be really beneficial, said Atkinson of the Information Technology and Innovation Foundation.

“The best kind of foreign investment for the United States is a company coming in here and building something, and saying, ‘We want to be here, we want to produce here, we want to hire American workers here,’” Atkinson said.

Those are the kinds of foreign investments that CFIUS should encourage, he said.