Don’t rush to create an outbound investment review

There are ongoing discussions in Congress and the White House to build a federal program that will review and block American investments abroad. While the idea comes from a good place, the issue is such a complicated matter that new authorities are not something the White House should dictate through executive order, or that Congress should force by attaching it to a must-pass piece of legislation like the annual National Defense Authorization Act.

America’s supply chains, along with the international flow of funds, are such complex matters for the government that officials can dedicate their entire careers studying just one industry. Rushing to build a new government program that could scrutinize American investments would become a bureaucratic nightmare destined to fall short of addressing America’s national security needs. 

Reviewing and blocking investments isn’t new. The idea for reviewing American investments comes from an existing government program, the Committee on Foreign Investment in the United States, or CFIUS. This interagency program reviews foreign investments for any potential threat to America. Occasionally, even the president will use his authority under CFIUS to block foreign investments.

CFIUS began as an executive order nearly 50 years ago. At the time, its mission was to simply keep an eye on foreign investments coming into the U.S. It had no authority to take action against harmful foreign investments until nearly 13 years later. Its authority has slowly grown over the years, with major amendments to CFIUS most recently in 2007 and in 2018. Now the interagency group has hundreds of staff and a multimillion-dollar budget across the more than dozen federal agencies, including the intelligence community, involved in its process.

Even now, the agencies of CFIUS have a full-time job keeping up with the volume of investments coming into the U.S. And generally speaking, there are just as much foreign direct and portfolio investments leaving the U.S. as there are coming in. It would be naïve to think that another program to cover a subject so large and complex as international investment can be easily replicated overnight.

Much of the discussion on whether there should be a review of outbound American investments is often confused with discussions on how to build America’s supply chain resiliency or how to compete with China. It’s understandable that policymakers want to make sure America is in a good position to protect its economic and strategic interests. But what the U.S. lacks is a long-term strategy to deal with these issues, not more bureaucracy.  

These discussions often disregard the fact that America’s current supply chain networks took years — some, decades — to form and that they’ll take years to adjust. Some assume that an outbound investment review can be tailored to focus specifically on troublesome markets such as China to avoid any potential harm to American investors. But pull the strings of international investment and even companies that aren’t directly involved in the China market likely have suppliers that are. That means moving too fast to create an outbound review mechanism could end up hurting the companies policymakers hope to protect.

If Congress and the White House are serious about American investments abroad and adjusting supply chains, they should hold more discussions on why investors move out of America in the first place. The fact is that previous administrations and Congress have failed to make America a more attractive place for certain investments.

That’s not to say America isn’t an attractive place to invest. It is still the most attractive destination in the world for foreign investment — and yet some supply chains are almost entirely foreign. Few in government want to address the overbearing federal, state and local laws and regulations that make investing in America a headache. And unless the root of the problem is addressed to make America an easier place to invest, blocking American investments abroad won’t bring that money home; it’ll simply go to one of a dozen other more attractive foreign destinations.

It took CFIUS nearly 50 years to get where it is now. Don’t think the government can just pick up and run a similar program overnight. What the U.S. needs is to start with a narrow set of goals. But more importantly, it needs a long-term strategy. Don’t rush to create a large government program like outbound investment review.

Riley Walter is the deputy director of the Japan Chair at Hudson Institute and senior nonresident fellow at the Global Taiwan Institute. Follow him on Twitter @WalteRiley.