First trade, now investments: US escalates its economic war with China at its own peril

Dominic Ng warns that closer US scrutiny into investments by foreign companies could lead to a blanket ban on Chinese funding in specific sectors, in turn dealing a blow to US jobs, America’s investors, and its reputation for transparency and openness

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Published: 2:00am, 28 Jun 2018Updated: 11:27am, 29 Jun 2018

The United States and China are on the cusp of a tit-for-tat trade war. Initial threats of tariffs on US$50 billion of products from China have escalated to talk of action against an additional US$400 billion in imports. But even while all eyes are on the goods trade tussles, Washington is opening another front in this battle: on investment.

Legislation to expand the authority of the Committee on Foreign Investment in the United States (CFIUS) to screen inbound investment for national security is close to passing through Congress. While some changes proposed in the bill (the Foreign Investment Risk Review Modernisation Act) are warranted, I am worried that vague language will give Donald Trump’s administration too much leeway to politicise implementation.

Given this president’s confrontational and unpredictable approach towards China and the international economy in general, this is a concern.

The president has said he will not impose additional restrictions on Chinese investment, which were slated to be announced on June 29. However, parts of the cabinet have made contrary statements and, as the trade dynamics show, we cannot be sure that these restrictions are off the table.

US Treasury Secretary Steve Mnuchin listens to Senator John Hoeven of North Dakota during a meeting in the White House in Washington on June 20. Mnuchin has reportedly urged a less confrontational approach to Chinese investment than the Trump administration has sought, and publicly denied that investment restrictions were aimed at China specifically. Photo: EPA-EFE

US-China dispute goes beyond trade: it’s about technology and fair competition

It is still possible the US will impose restrictions specifically on Chinese acquisitions in hi-tech sectors as well as stricter controls for the transfer of technology developed in greenfield facilities.