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More US controls for foreign investment

Published 20 September 2022

Concerned with risks to national security and competition with China, the US is adopting measures to further scrutinize inbound investments, while possibly preparing to control outbound investments as well, potentially representing a significant shift in the US approach toward foreign investment.

Shift in US approach to foreign investment

This week, the Biden Administration adopted the first executive order on CFIUS, expanding the scope of foreign inbound investment reviews to cover key areas, reports Nikkei Asia. It is also considering an executive order to screen US outbound investments in China, per the Wall Street Journal. What might this mechanism look like? The Atlantic Council proposes ideas.

Data on foreign investment flows into China may be distorted by offshore Chinese companies routing investments through Hong Kong, says Bloomberg.

Mentioned Publications

  1. FACT SHEET: President Biden Signs Executive Order to Ensure Robust Reviews of Evolving National Security Risks by the Committee on Foreign Investment in the United States – The White House, 15 September 2022
  2. Biden orders deeper foreign investment reviews in chips, supply chains – Jack Stone Truitt, Nikkei Asia, 15 September 2022
    A new executive order expands the scope of CFIUS to scrutinize foreign investments in key areas.
  3. White House Weighs Order to Screen U.S. Investment in Tech in China, Other Countries – John D. McKinnon, The Wall Street Journal, 8 September 2022
    The White House may issue an executive order for an outbound investment screening mechanism.
  4. Sand in the silicon: Designing an outbound investment controls mechanism – Sarah Bauerle Danzman and Emily Kilcrease, Atlantic Council, 14 September 2022
    What might an outbound investment review and control mechanism look like?
  5. China’s Foreign Investment Data Distorted by Hong Kong Flows – Bloomberg News, 6 September 2022
    Growth in China’s foreign investment is coming from offshore Mainland companies, not foreign ones.

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Global forces shaping trade and globalization 

Are we in an era where climate change and energy shocks shape trade flows and globalization more than government policies?  Alan Beattie, writing in the Financial Times, argues the case. We are already seeing how climate change is leading to supply chain disruptions, according to the New York Times.  Sharply rising energy costs should make Brazilian soybean exports uncompetitive, but critical infrastructure investments have helped preserve Brazil’s advantages, per Bloomberg. 

Mentioned Publications  

  1. Trade policy will not determine the future of globalization – Alan Beattie, Op-ed: Financial Times, 5 September 2022 
    Climate change and energy shocks will have more influence on the future of trade than government policy. 
  2. Climate Change Could Worsen Supply Chain Turmoil – Ana Swanson and Keith Bradsher, The New York Times, 8 September 2022 
    Climate change means increasing frequency of extreme weather events that may severely disrupt trade. 
  3. US Is Losing Soybean-Export Edge as Brazil Closes Logistics GapTarso Veloso Ribeiro and Augusta Saraiva, Bloomberg, 6 September 2022 
    Brazil’s infrastructure investments lower costs enough to score a comparative advantage. 

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How are Asian regional trade agreements shaping up?

Last week, the US hosted the Indo-Pacific Economic Framework agreement trading partners at a high-level meeting in Los Angeles, where they agreed on negotiating objectives.  India has opted out of trade negotiations, but will commit to negotiations in other key areas, reports Nikkei Asia. The US is trying, unsuccessfully so far, to form an alliance with the major Asian chip producers, according to the Financial Times. RCEP is yet to be ratified by a few ASEAN economies, The South China Morning Post explains why. 

Mentioned Publications  

  1. United States and Indo-Pacific Economic Framework Partners Announce Negotiation Objectives – US Department of Commerce, 9 September 2022 
    IPEF trading partners have reached a consensus on negotiating objectives addressing key issues. 
  2. Indo-Pacific framework objectives take shape, but India not all in – Jack Stone Truitt, Nikkei Asia, 10 September 2022 
    India opts out of trade pillar talks with the US and other IPEF countries. 
  3. US struggles to mobilise its East Asian ‘Chip 4’ allianceChristian Davies, Song Jung-a, Kana Inagaki, and Richard Waters, Financial Times, 13 September 2022 
    As the US gains traction in Asia through IPEF, it struggles to ally with key Asian chip producers.  
  4. Why haven’t Philippines, Myanmar followed Indonesia and ratified the RCEP trade deal? – Mia Nulimaimaiti and Andrew Mullen, South China Morning Post, 4 September 2022 
    Despite signing the original agreement, domestic politics are keeping countries out of RCEP. 

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China strives to protect its domestic industry

MERICS studies instances of Chinese economic coercion from the past decade and provides lessons learned. China is forcing foreign medical device makers to produce in China or lose access to the Chinese market, reports Nikkei Asia. 

Mentioned Publications  

  1. Fasten your seatbelts: How to manage China’s economic coercion – Mercator Institute for China Studies (MERICS), 25 August 2022 
    MERICS provides a clear analysis of China’s economic coercion of countries and companies to date. 
  2. China moves to shut out foreign medical equipment makers – Shunsuke Tabeta and Tomoko Wakasugi, Nikkei Asia, 14 September 2022 
    Foreign medical device makers are being shut out of the Chinese market unless they manufacture domestically. 

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