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Trump Plans New Curbs on Chinese Investment, Tech Exports to China

The Wall Street Journal. logo The Wall Street Journal. 6/25/2018 Bob Davis

Wilbur Ross wearing a suit and tie © Mark Wilson/Getty Images WASHINGTON—President Donald Trump, already embroiled in a trade battle with China, plans to ratchet commercial tensions higher by barring many Chinese companies from investing in U.S. technology firms, and by blocking additional technology exports to Beijing, said people familiar with administration plans.

The twin initiatives, set to be announced by the end of the week, are designed to prevent Beijing from moving ahead with plans outlined in its “Made in China 2025” report to become a global leader in 10 broad areas of technology, including information technology, aerospace, electric vehicles and biotechnology.

The Treasury Department is crafting rules that would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls “industrially significant technology.” The ceiling may end up lower than that, according to people familiar with discussions finalizing the plans.

In addition, the National Security Council and the Commerce Department are putting together plans for “enhanced” export controls, designed to keep such technologies from being shipped to China, said the people familiar with the proposals.

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“We’ve got trillions of dollars seeking our crown jewels of technology,” said White House trade adviser Peter Navarro last week. “There has to be a defense against that.”

Before the rules go into effect, the individuals said, U.S. industry would have a chance to comment.

Industry groups, especially in the finance and technology industries, have been trying to track the progress of the proposal as it goes through various iterations in the administration.

They are mainly concerned that the export controls could negatively affect their businesses by preventing them from using their technological edge. While many object to the investment restrictions, they are seen as having less practical impact because Chinese investment has fallen off so drastically. Most of the industry lobbying has been focused on Congress, which is debating how to strengthen national-security reviews of foreign investment.

The twin measures would continue the administration’s use of a national-security rationale to justify economic actions. Steel and aluminum tariffs on Canada, Mexico, the European Union and other allies were put into effect earlier this year under a national-security provision of the Trade Expansion Act of 1962. For investment restrictions, the administration is planning to use the International Emergency Economic Powers Act of 1977, or IEEPA, which gives the president broad authority in the case of an “unusual and extraordinary threat,” said the people familiar with the internal debate.

IEEPA was widely employed after the Sept. 11, 2001 terrorist attacks to impose sanctions on other countries. Some trade associations are looking at whether they can challenge the use of the law in a continuing trade fight. “The administration is saying, ‘if we declare everything a national security issue we can do whatever we want,’” said Derek Scissors, a China expert at the American Enterprise Institute. “It’s a misuse of executive power.”

“The President has made clear his desire to protect American technology,” said Commerce Secretary Wilbur Ross, in a statement to The Wall Street Journal on Sunday. “All possibilities that would better protect American technology, including potential changes to export controls, are under review.”

The plan hasn’t been finalized and some details may change. Under plans being considered by the administration, the U.S. would bar purchases of U.S. technology companies from entities where Chinese investors own at least 25%—the exact cutoff is still being discussed. Investments below that mark could still be blocked if the administration determines that Chinese investors could obtain the technology through board seats, licensing agreements or other measures.

The administration would look only at new deals and wouldn’t try to unwind existing ones, the individuals said. But existing U.S.-China joint ventures would be barred from making additional investments in advanced U.S. technology because of the Chinese influence. Although much of the administration’s efforts have been focused on the role of state-owned Chinese firms, the investment bar wouldn’t distinguish between state-owned or private Chinese firms because the administration believes that the Chinese government exerts enormous influence on all Chinese companies.

To make sure that certain U.S. technologies didn’t flow to China via trade, the administration would also clamp down on exports of the Made-in-China-2025 technologies. The National Security Council is putting together policy recommendations on how to carry that out. The Commerce Department’s Bureau of Industry and Security regularly reviews technology with an eye toward allowing companies to sell the product without exports licenses if the technology is commercially available.

Josh Kallmer, senior vice president at the Information Technology Industry Council, a trade association of high-technology companies, said he expected plenty of companies to offer comments on the proposal.

“There is opportunity for the administration to arrive at a formula for policy that addresses national-security risks in a targeted way and not put a blanket on activities that our companies are involved in every single day,” he said.

The beefed-up investment and export restrictions come on top of threats by Mr. Trump last week to impose tariffs on as much as $450 billion of Chinese goods. On July 6, the first tariffs, of 25%, go into effect on $34 billion of Chinese imports. Beijing has threatened to match the U.S. tariffs on the same day on a dollar-for-dollar basis.

Foreign investments already must pass interagency review under the Committee on Foreign Investment in the U.S., to see if they violate national security. CFIUS reviews—or the threat of reviews—have largely halted Chinese purchases of U.S. semiconductor companies. They have also put a crimp on other Chinese investments. According to Rhodium Group, a market research firm, Chinese investments were down 92% in the first half of 2018 from a year earlier, to $1.8 billion, because of Chinese curbs on credit and U.S. scrutiny of Chinese deals.

A bill to make CFIUS reviews even tougher is making its way through Congress. It would also create a new export-control system to review whether overseas joint ventures are improperly transferring critical technologies to foreign companies.

Treasury officials have argued that a stricter CFIUS would go a long way to protecting U.S. technology, and any additional restrictions must be narrowly focused.

Other administration officials, including Mr. Navarro and U.S. Trade Representative Robert Lighthizer, have argued that the Chinese have been able to make advances, despite CFIUS, using U.S. technology in many fields, especially biotechnology and agriculture. Additional controls are necessary, they argue.

Under the Obama administration, CFIUS approved China National Chemical Corp.’s acquisition of Swiss seed giant Syngenta AG. The Trump administration gave the deal final regulatory approval last year. The administration also worries that CFIUS misses small investments—sometimes disguised—by Chinese in venture-capital firms in technologies that can bear fruit years later, according to people familiar with the deliberations.

A White House briefing by intelligence agencies to cabinet and White House officials in the spring of 2017 on Chinese efforts to obtain U.S. technology through acquisitions, licensing and theft was especially influential in spurring the new restrictions, said the individuals familiar with the proposals. The intelligence officials explained how every level of the Chinese state was involved in the effort, said a person familiar with the meeting.

The discussion made such an impression that the intelligence officials quickly gave Mr. Trump his own briefing on the issue.

Write to Bob Davis at


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