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Focus on Regulation

CFIUS under the Trump Administration

The incoming Trump administration’s approach to foreign direct investment (FDI) in the United States and to national security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) is difficult to predict. Mr. Trump has criticized certain foreign investments in the United States, but his trade-related critiques have focused largely on U.S. free trade agreements and the loss of U.S. manufacturing jobs to foreign countries. Nonetheless, according to CNN, a Trump transition team draft memorandum outlining Mr. Trump’s trade policy for the first 200 days of his presidency indicates that Mr. Trump would mandate that CFIUS reviews be expanded to consider food security and reciprocity in the treatment of U.S. investments abroad.

Members of Congress previously have made similar proposals related to food security, including in connection with Chinese acquisitions of pork producer Smithfield Foods, Inc. and the U.S. subsidiaries of Swiss agribusiness Syngenta AG. In a September 15, 2016 letter, members of Congress, noting the upcoming presidential transition, recently called for the U.S. General Accountability Office (GAO) to examine whether CFIUS’s regulatory and statutory powers “have effectively kept pace with the growing scope of foreign acquisitions in strategically important sectors in the U.S.” and to consider whether CFIUS should (i) use a net economic benefit test in its reviews of foreign investments and (ii) mandate reviews of Chinese government-backed investments. GAO agreed to conduct the review. Last month the U.S.-China Economic and Security Review Commission, created by Congress in 2000, advocated outright barring Chinese state-owned enterprises from acquiring or otherwise gaining control of U.S. companies.

Under existing law, CFIUS reviews are focused on threats to U.S. national security. “National security” is not a defined term under the relevant regulations and statute, so even without regulatory or statutory changes, the Trump administration could seek to expand the scope of CFIUS’s reviews by interpreting “national security” to include food security and reciprocity in cross-border investments. Chinese media reports and our discussions with Chinese investors suggest that, at least in the short term, some Chinese investors might be cautious about certain investments in the United States until they better understand the Trump administration’s likely approach to FDI in the United States.