The Committee on Foreign Investment in the United States (CFIUS) was established in the 1970s by the US Department of Treasury as a mechanism to address national security risks associated with cross-border capital flows. While historically focused on scrutinising foreign investment activities within US borders, recent developments might precipitate an unprecedented shift in this operational paradigm.

The United States is enhancing collaboration with its allies and partners with the aim of extending the reach of its foreign investment security review system and establishing a cross-border investment review network.

Currently, the United States is taking actions to influence the policies of other nations in order to align them with its efforts to promote cooperation on foreign investment review. It encourages allies to establish screening systems similar to its own, with functions to identify foreign investments that pose risks to national security. The United States is also urging allies to develop mechanisms for information sharing and coordination.

This involves analysing trends in cross-border capital flows, sharing best practices in evaluating and eliminating national security risks associated with specific transactions and coordinating responses to investments from particular countries. To enhance cooperation, CFIUS has instituted a whitelist system encompassing countries with similar review processes and those collaborating with the United States on investment review. Transactions from these countries will be given preferential treatment.

Since assuming office, US President Joe Biden’s administration has consistently pursued these objectives. The CFIUS Annual Report 2022 details measures undertaken by the Treasury Department to enhance review capabilities, including expanding its team of professionals dedicated to international cooperation in investment reviews.

In his testimony submitted to the House Financial Services Committee on 12 September 2023, Paul Rosen, Assistant for Investment Security at the Department of the Treasury, emphasised the United States’ intent to engage with foreign allies and partners on investment review matters, advocate for the global adoption of a similar investment review framework based on national security, and offer technical assistance to countries interested in establishing such systems.

Efforts to prevent unauthorised dissemination of sensitive technology through foreign investment screening were highlighted during the 2023 G7 Summit, with subsequent initiatives such as the US–UK Atlantic Declaration and the Joint Statement made by the United States and European Union Trade and Technology Council further reinforcing these objectives.

This move is part of the continuation and intensification of the United States’ competition with China, which started during former president Donald Trump’s time in office. In 2017, the National Security Report designated China as a ‘strategic competitor’ and recalibrated its approach to engage in comprehensive competition. Economic matters, including investment reviews, emerged as pivotal tools in Trump’s confrontational stance towards China. The enactment of the Foreign Investment Risk Review Modernization Act of 2018 marked a significant moment. The legislation included provisions that specifically targeted China, which resulted in a significant decrease of Chinese direct investment in the United States.

Besides safeguarding the United States’ technological leadership, for Biden, investment review also has significant strategic importance in bolstering supply chain resilience. The ‘100-Day Review’ report on supply chains, issued by the White House on 8 June 2021, highlighted the United States’ overreliance on China across various strategically vital industrial sectors. This prompted the Biden administration to embrace ‘de-risking’ measures against China, including eliminating the footprint of Chinese capital in the US supply chain. The report explicitly called for ongoing information sharing by CFIUS with partners and urged allies and partner nations to bolster their scrutiny of foreign investment.

The Biden administration believes that relying solely on foreign investment reviews within the United States might be insufficient, as China could potentially circumvent US barriers by investing in third-party countries. The White House is also concerned that investments could serve as a conduit for China to acquire advanced technologies from allies or indirectly access US technology.

Diverging from Trump’s ‘America First’ doctrine and his unilateral approaches, Biden’s plan involves collaborating with allies and partners to restrict Chinese investments in key sectors, ultimately aiming to exclude China from critical supply chains and marginalise its position in the global production system. This is the core logic behind Biden’s attempt to extend the investment review mechanism to third countries and it explains why the countries currently collaborating with the United States are primarily those who share special economic and trade relations with Washington as well as its political and military allies.

Various measures have been adopted by the Biden administration to address Chinese investment in third countries. These include shaping public opinion through the media to amplify concerns about Chinese investment. It has implemented a ‘carrot and stick’ strategy by establishing an investment review whitelist for cooperating nations and leveraging third countries’ security dependencies on the United States to secure cooperation.

A recent report by the United Nations predicts that ‘global investment is likely to remain subdued’, in the short term largely due to heightened geopolitical uncertainty. Strengthened cooperation between the United States and third countries in investment reviews may impede investments by relevant industries and enterprises, extending beyond China to potentially affect other nations and exacerbate the challenges faced in the international investment landscape.

Qisheng Wu is Associate Professor and Executive Director of the Department of American Studies of Institute of International Relations, Shanghai Academy of Social Sciences (SASS).

Dianzan Li is a Postgraduate Student at SASS.