Trump Administration Issues “America First Investment Policy”

In its first substantive articulation of policies governing cross-border investment, the Trump Administration has issued a National Security Policy Memorandum (“NSPM”) titled an “America First Investment Policy.” The NSPM directs relevant Cabinet departments and federal agencies to implement measures to lessen the burden on foreign investment from U.S. allies and partners, while announcing policies that will further restrict inbound investment from Chinese investors and outbound flows of U.S. capital to China. Following on the “America First Trade Policy,” issued by the Administration on its first day in office and subsequent tariff actions, see our prior alert - Implications of the Trump Administration’s Tariff Executive Orders for U.S. Importers, the America First Investment Policy signals that the second Trump Administration plans to build on existing national security and international trade policies from the first Trump Administration and the Biden Administration by further limiting Chinese investments in sensitive U.S. businesses, and further restricting China’s ability to use U.S. investments to fund activities the United States deems detrimental to national security. The stated goal of the America First Investment Policy is that “United States investors will invest in the future of America, not the future of the PRC.”

The America First Investment Policy does not change existing law or regulations, but identifies several areas of proposed specific regulatory changes pursuant to existing legal authority, as well as proposals that would require new legislation.

Inbound Investment

As a statement of policy, the NSPM’s aim for inbound investment is to limit restrictions on foreign investors’ access to U.S. assets in sensitive areas “in proportion to their verifiable distance and independence from the predatory investment and technology-acquisition practices of the PRC and other foreign adversaries or threat actors.” The NSPM further promises to incentivize certain investments from allies by creating an expedited “fast-track” process for investments in U.S. advanced technology from specified allied and partner countries, and expediting environmental reviews for any investment in the United States over $1 billion.

The NSPM lays out a number of planned changes to the scope and process of the review of foreign investments by the Committee on Foreign Investment in the United States (“CFIUS”). Most notably, it announces an intention to expand CFIUS’s ability to review (and potentially block) certain “greenfield” investments and acquisitions of farmland, which would require amending the CFIUS-authorizing statute, and to expand the scope of “emerging and foundational technologies” subject to CFIUS review. The NSPM also directs CFIUS to stop using mitigation agreements for investments by Chinese investors, which could lead to CFIUS blocking more Chinese investments.

Outbound Investment

In parallel to expanding restrictions on inbound Chinese investment, the NSPM proposes to further restrict U.S. outbound investment in China, with the particular aim of stopping U.S. investors from funding Chinese military and technological advancement. The NSPM promises to “use all necessary legal instruments to further deter United States persons from investing in the PRC’s military-industrial sector,” including economic sanctions and expanding existing regulations restricting the purchase of publicly-traded securities of certain Chinese companies, and the Outbound Investment Security Program (“OISP”). See our prior alert - Biden Administration Implements New Outbound Investment Security Program.

The NSPM identifies additional sectors of the Chinese economy that could be a focus, including biotechnology, hypersonics, aerospace, and areas implicated by the PRC’s military-civil fusion strategy, which could encompass large parts of China’s economy.

Notably, the NSPM highlights U.S. universities, in particular, should “stop supporting foreign adversaries with their investment decisions, much as they should stop granting university access to supporters of terrorism.”

Restrictions on Chinese Access to U.S. Capital

The NSPM identifies other legal avenues that have not previously been used for national security purposes as potential mechanisms for restricting or disincentivizing China’s access to U.S. capital. These include reviewing whether to suspend or terminate the U.S.-China Income Tax Convention, seeking to use ERISA to ensure Chinese companies are ineligible for pension plan contributions, and reviewing the use of variable interest entities to trade on U.S. exchanges. Certain of these actions, if implemented, may be symbolic with little or no practical impact; others (such as categorically barring pension plan investments in certain assets irrespective of their risk and return characteristics) almost certainly will require legislative action. But they nevertheless show the Trump Administration is actively exploring a range of legal mechanisms to restrict Chinese access to U.S. capital.

Implications

The America First Investment Policy confirms the Trump Administration’s continued focus on the national security risks posed by Chinese investment in the United States and concerns about U.S. capital being used to fund military and technological advancements in China contrary to U.S. interests.

Though the NSPM ostensibly focuses on foreign adversaries, defined to include China, Cuba, Iran, North Korea, Russia, and Venezuela, China is the main focus of such policies as transactions with investors in those other jurisdictions are either prohibited or limited by existing economic sanctions measures. Accordingly, companies engaged in cross-border investment activities in China or with Chinese counter-parties should be mindful of the risks of increasing regulation intended to further limit inflows of Chinese money into the United States and U.S. investments in China.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. David J. Ribner, an O’Melveny partner licensed to practice law in the District of Columbia and New York; Greta L. Nightingale, an O’Melveny partner licensed to practice law in the District of Columbia; Brian Boyle, an O’Melveny partner licensed to practice law in California and the District of Columbia; Luc Moritz, an O’Melveny partner licensed to practice law in California; Pamela A. Miller, an O’Melveny partner licensed to practice law in New York; Steven J. Olson, an O’Melveny partner licensed to practice law in California; Jennifer B. Sokoler, an O’Melveny partner licensed to practice law in New York; Meaghan VerGow, an O’Melveny partner licensed to practice law in the District of Columbia and New York; and Hannah V.L. George, an O’Melveny associate licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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