American Restrictions On Investing In China Could Increase Soon
April 21, 2025
Export controls have become a popular bipartisan tool to restrict China’s ability to benefit from advanced American technology, and their use has come under scrutiny recently with the new reported restrictions on Nvidia and AMD for the sale of their advanced AI semiconductors. However, export controls are not the only tool available to the federal government to achieve this end. Outbound investment offers another way for officials to address the perceived issue of U.S. resources supporting China’s development of advanced technologies.
Outbound investment regulation has been a focus for members of Congress for years. Still, legislation has yet to pass both chambers, with the most progress having been made in the Senate, which passed a measure with unanimous support. However, with the unified Republican control of Congress, there is new optimism that a breakthrough is possible, according to Politico. The previous disputes have not been about whether there is an issue that needs addressing, but what the best method to do so is. There are now signs, though, that these disagreements are being smoothed over, leaving Congress ready to act.
However, the holdup on congressional action is a lack of input from the White House, which could also opt to act unilaterally to revise existing outbound investment regulations. The Biden administration established the current rules through unilateral action. These restrictions cover a small set of advanced technologies, semiconductors, quantum computing, and AI, and they create some ability for the government to block certain investments. The rules largely govern venture capital and private equity investments, as investments in publicly traded securities were explicitly exempted.
The delay in providing input to Congress from the Trump administration is not due to a lack of interest, but rather a debate over how best to address outbound investment regulations. President Donald Trump’s America First Investment Policy executive order explicitly directed the Treasury Department to review current rules and “consider new or expanded restrictions on US outbound investment” in China.
With the focus on tariff policy and the relevant administration officials yet to be nominated, the specifics of how this policy could develop have yet to be detailed by the Trump administration. Still, if the White House were to choose a unilateral approach, there are several avenues it could take to limit outbound investment in China. The most likely and straightforward approach is to build on the regulations imposed by the Biden administration, likely by expanding the covered sectors. Trump’s EO suggests additional industries that could be addressed in such an expansion include “biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by the PRC’s national Military-Civil Fusion strategy.” Changes could also be made to the threshold when certain investments can be blocked by the government, rather than just requiring notification.
A more aggressive approach would see the Trump administration narrowing or scrapping the exemption for investments in publicly traded securities. However, doing so under these broad rules could create an implementation headache. Instead, Trump could opt for a more targeted approach to limiting investments in certain Chinese companies listed in public markets, relying on the powers he developed during his first term. The list of businesses under these restrictions has remained unchanged since the end of 2021. However, the Department of Defense’s list of Chinese military companies operating in the U.S. could provide fodder for officials considering an expansion of these limits.
If the Trump administration wanted to target the trading of Chinese securities beyond just those in these advanced tech sectors, it could push for delisting these companies in the U.S. or banning variable interest entities, a common corporate structure used by Chinese companies to list in the U.S., from American exchanges. Treasury Secretary Scott Bessent indicated that these delisting policies are under consideration as part of the ongoing trade war. Still, if the Trump administration were to restrict American outbound investment in China, it is more likely to start by expanding existing Treasury Department regulations before moving to a broad delisting of Chinese companies in the U.S.
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