A measure under consideration in Congress plans to establish a process to monitor, and possibly ban, some American companies from investing in China.
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The purpose of the recently passed Chips Act is to help improve the competitiveness of America and China in semiconductor manufacturing. Another bill in Congress, the bipartisan COMPETES Act — of which CHIPS was once a part — is much larger in scope.
A proposal by a group of partisan lawmakers wants to control how parties in the US can invest in rival countries like China. This law will create analytical methods to monitor the country’s ability and possibly prohibit activities that are considered to threaten “national critical ability.” If they pass, companies in sectors such as artificial intelligence, medicine and quantum technology could be targeted by the government.
Although the US already has rules on how foreign players can invest here, experts say what happened is unprecedented. Business groups such as the US Chamber of Commerce and the National Foreign Trade Council expanded the law, saying in a letter to Congress that the proposed rules are excessive and could lead to compliance.
“In some ways, what the US is saying is new, and it will probably be followed by other countries around the world, if America’s friends and supporters are moving in the same direction,” said Scott Kennedy of the Center for Strategic and International Studies interview with “Marketplace Morning Report” host Sabri Ben-Achour.
Below is an edited transcript of their conversation:
Sabri Ben-Achour: So, you know, behind the scenes in the build-up to this bill, and even so now there are a few versions of this idea that the US should monitor or control how companies finance, when it comes to certain technologies in other countries, meaning China. What would such an investigation look like?
Scott Kennedy: There are many different forms it could take, one model would be to simply require Americans who invest abroad in high tech to register those investments with the US government. A more intrusive approach would require US government approval for certain types of technology and certain types of countries as a matter of course. Now there may be something in between these two broad categories. So there are many different ways that one can try to control American money abroad.
Ben-Achour: In practice, what would this look like? So a company wants to build a factory or something, and they have to submit an application before they can do it?
Kennedy: Well, I think the way the policy has been changing, let’s say you’re a company that wants to invest in China, or you have a potential adversary, but China is really driving this. So if you want to invest in a country like China and you have some advanced technology, probably, what you will need to do is to register it with the US authorities, the Department of Commerce, or if they create a new product. And then you can wait for approval, or go ahead and then your ticket can be called and you may have to go back to explain yourself. It is also possible that the US will come up with a clear list of technologies that are blocked, and where investment cannot continue until there is a review. So I would expect for most American companies, this looks like a registration process the same way you register your imports and exports with U.S. customs. But for a few, this will be a new regulatory hoop that may take them several weeks or months to get through.
Ben-Achour: The idea that the U.S. would, you know, otherwise or look out for investment from here to other countries has been criticized by supporters of free trade, venture capitalists, business groups, including the U.S.-China Business Council. And those concerns were enough to keep it out of the CHIPS Act, at least. What are the main concerns?
Kennedy: The first is that having a foreign investment inspection system would be too burdensome for American industry and manufacturers who are looking to collaborate with other organizations around the world to push the boundaries of knowledge, which will help them stay ahead of the curve. industries. And if this is too difficult for them to do, it can slow them down. In addition, it may, with those kinds of restrictions, reduce the interest that others have in investing in the United States or studying in the United States or developing in the United States, if our system [has] too many restrictions. If it gets too difficult, we may end up killing the goose that lays the golden egg and forcing our technology at home and abroad, which may be a bigger risk than any technology we end up giving to the adversary out there. So I think we need to strike a balance that does everything it can to continue to preserve what is best about the American economy, which is our founding ecosystem.
Ben-Achour: Do other countries do this, check money from their countries going to other countries?
Kennedy: There are few countries that I know of that have extensive foreign investment systems. Taiwan really does. There are strict regulations on the types of things you can invest in China and they must go through the Taiwanese authorities. But many countries are more dependent on the export control system to control the emergence of technologies than on investment. So in a way, what the US is saying is new, and maybe it will be accompanied by other countries in the world, at least, America’s friends and allies going in a similar direction.
Ben-Achour: How do you think China would see this if we had such a system?
Kennedy: Well, I’m sure that the way the Chinese propagandists are creating this [is] to try with America to limit the free movement of trade, commerce and investment between China and the rest of the world. And that this means keeping China down. I’m sure that’s how they make it. And of course, China itself has a variety of restrictions [on] the inward flow of investment in China. We are trying to balance that with Chinese industrial policy [and] national security policy. They also have restrictions on foreign investment, too. And so even though they may criticize the U.S., they do so without being sure that this is the broader context of where all of our relationships are and the fact that they have a lot of restrictions on the flow of technology as well.
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