CFIUS and Foreign Investments: Balancing National Security and Economic Growth

President Joe Biden recently signed a bill that highlights the role of the Committee on Foreign Investment in the United States (CFIUS) in evaluating foreign investments with potential national security implications. The bill requires ByteDance, the Chinese company behind TikTok, to sell the app by January or face a ban in the U.S.

Representatives from various government agencies responsible for national security, economic, and commercial matters compose CFIUS. Its primary objective is to evaluate foreign investments and determine if they pose  national security risks. This evaluation can encompass a broad range of transactions, including those involving critical infrastructure and cybersecurity elements.

Initially established in 1975 to study foreign investment, CFIUS has expanded its powers over the years, particularly following concerns about Japanese investments in the United States in the 1980s. The Exon-Florio amendment  1988 empowered CFIUS to recommend blocking foreign acquisitions based on national security concerns.

In the 2010s, amid China's economic rise, Congress further expanded CFIUS' authority with the Foreign Investment Risk Review Modernization Act of 2018. This allowed CFIUS to scrutinise smaller foreign investments, including venture capital, and even sensitive real estate transactions near military installations.

The increased scrutiny from CFIUS has led to a growing number of deals under review, with potential chilling effects on foreign investment. While some argue that such scrutiny is necessary to safeguard national security, others express concerns that it may deter beneficial foreign investments contributing to economic growth and job creation in the U.S.

Ultimately, balancing national security concerns with the benefits of foreign investment remains a crucial challenge for CFIUS as it continues to evaluate and potentially regulate foreign acquisitions and investments in the United States.