As we previously reported, President Trump’s America First Investment Policy (the “AFIP”) set forth a direct statement regarding the Administration’s policy on foreign investment and national security matters. Among other things, AFIP clearly equated national security and economic security, prioritized investment from ally and partner countries, set direction to streamline and reduce barriers to such friendly investment, and articulated an intent to use executive authorities potentially expansively to curb investment from the People’s Republic of China (“PRC” or “China”) and other “countries of concern” in a broad segment of sectors identified as central to U.S. national security.
Four months into the Trump Administration, investors are beginning to see more concretely the applications of these policies in the processes of the Committee on Foreign Investment in the United States (“CFIUS”) as well as a more transaction- and headline-focused approach for the Administration.
The regulatory environment is improving for investments from U.S. allies and partners. AFIP stated the Trump Administration’s intention to simplify the regulatory environment, streamlining and accelerating national security regulatory processes for trusted investors from U.S. allies and partners. In the months since the publication of AFIP, this has begun to play out at a practical level with CFIUS and other national security regulators increasingly focused on shortening review timelines and reducing the use of mitigation measures except where truly necessary to address unacceptable national security risks.
It is in this context that the Treasury Department has now announced the CFIUS fast-track pilot program. The Treasury Department will select a group of “known investors”—likely anywhere from a small handful to a dozen or so—to participate in the program. The stated goal of the program is “to facilitate greater investment from allies and partners,” and, accordingly, participating investors will likely be chosen by the Treasury Department on the basis of their affiliation with countries that are U.S. allies and partners, the frequency with which they file with CFIUS and their history of obtaining approvals, and possibly geographic diversity. Likely participants include sovereign wealth funds of U.S. allies and other large investors who have appeared before U.S. national security regulators frequently in the past. The program will entail the launch of a “Known Investor portal,” which will act as a repository of information from certain participating investors, with the goal of reducing the amount of time it takes for such investors to collect and submit information in connection with associated regulatory filings. For the time being, the focus of the fast-track pilot program appears to be streamlining this information-gathering process. However, AFIP contemplates broader efforts to accelerate national security regulatory processes, and we expect that as this policy is pursued more vigorously in the CFIUS context, a broader set of investors trusted by the U.S. national security community will likely benefit from an increasingly swift and efficient regulatory environment.
More balanced approach to enforcement and case management. In addition to the Trump Administration’s efforts to simplify and expedite review processes for trusted investors, there has also been a more general shift in regulators’ approach to enforcement. The last few years saw an exceptionally heavy emphasis on robust regulatory enforcement among U.S. national security regulators, including CFIUS. As a result, agencies spent significant resources on their enforcement efforts, including by proactively seeking out matters against which enforcement actions could be brought. Such a strong emphasis on enforcement, however, occasionally led to less rapid and efficient case review processes in the first instance. The Trump Administration has sought a more balanced approach, with a focus on progressing and concluding reviews and allowing transactions to move forward more rapidly and predictably.
Continuing focus on China risk. Even as the U.S. regulatory environment has begun to improve for trusted foreign investors, the U.S. government has continued to implement enhanced restrictions on the PRC across a range of national security regulatory regimes affecting investment and transaction, reflecting the ever-intensifying economic and geopolitical competition between the United States and the PRC. These include new regulations to review, restrict, or prohibit (a) outbound investments by U.S. entities into the PRC (31 C.F.R. Part 850), (b) access to U.S. sensitive personal data or U.S.-government-related data by PRC entities, and (c) the import of connected vehicles or related hardware with certain defined connections to the PRC. These regulations, which grew in part out of realizations related to CFIUS’s jurisdictional limitations, represent a substantial expansion of the types of transactions that the U.S. government can review for purposes of addressing associated national security risks. In each case, these new regulatory regimes explicitly identify the PRC as a country of concern and aim to limit PRC access to U.S. data, markets, and—through outbound investment restrictions—U.S. capital in sensitive sectors such as artificial intelligence (“AI”) and quantum computing. Consistent with AFIP, we expect the U.S. government will continue to expand its national security regulatory authority with respect to PRC entities, as the Trump Administration shifts away from the Biden Administration’s regulatory approach of a “small yard, high fence” to a “bigger yard”—in other words, expanding the universe of transactions that it considers to implicate U.S. national security concerns.
Uncertainty for small, passive Chinese investments. The Trump Administration’s approach to small, passive PRC investments remains deliberately ambiguous. While AFIP pledges to “welcome and encourage passive investments from all foreign persons,” it simultaneously threatens to use “all necessary legal instruments … to restrict PRC-affiliated persons from investing in United States technology, critical infrastructure, healthcare, agriculture, energy, raw materials, or other strategic sectors.” This tension reflects competing views within the Administration between economic nationalists advocating for comprehensive decoupling and pragmatists seeking more selective de-risking while encouraging capital flows to the United States. At this point, it is not clear which approach, if either, will prevail for the remainder of the Administration, as agencies continue to implement AFIP and develop through practice U.S. national and economic security regulatory policy.
Benefits and risks of “headline” transactions. As the United States increasingly approaches investment transactionally, there are benefits as well as risks for transaction parties. On the one hand, high-level commitments from investors from allied countries focused on investments in areas of core interest to the United States—for example, manufacturing capacity, data centers and AI, biotechnology, and other advanced technologies and areas of core national security and economic competitiveness—can induce support for more streamlined and favorable regulatory treatment, particularly for large dollar value commitments and transactions. On the other hand, this same transactional approach to regulation can also leave politically sensitive transactions more vulnerable to heightened scrutiny and politicization, and lead to solutions that shift from core national security interests closer to a “net benefit” or public interest framework.
Key takeaways for investors. The current environment is one that creates opportunities for transaction parties but also requires strategic planning and foresight that adapts to the current policy and processes in order to take full advantage of the opportunities and avoid pitfalls. To be more concrete, the environment is one that, in tandem, presents new opportunities for transactions to be cleared more quickly while sustaining risk aversion related to China and creating potentially different types of political risks. In this context, our recommendations include:
- Thorough planning to anticipate potential national security interests and how to present and communicate transactions is a must.
- Where possible, allied investors should begin documenting—and, where necessary, improving—their security practices, including with respect to cybersecurity, supply chain risk management, and secure product development lifecycles, to position themselves optimally for fast-track eligibility.
- Foreign investors may consider turning to joint ventures or minority structures in certain cases—rather than full acquisitions—in order to navigate political and regulatory crosscurrents and attempt to proactively mitigate associated regulatory risk.
- All investors, regardless of origin, should conduct early-stage political risk assessments and strategic planning alongside traditional CFIUS analysis for high-profile targets, recognizing that political sensitivity can now override traditional security considerations in the review process.
- Finally, given the fluidity of the current regulatory environment, transaction parties will want to build flexibility into their investment strategies and transaction structures. Firms that can navigate both the accelerated pathways for allies and the expanding restrictions on adversaries—while managing heightened political scrutiny and maintaining adaptability for policy pivots—will find significant opportunities in this reshaped landscape.
If you have any questions concerning the material discussed in this client alert, please contact the following members of our CFIUS practice.
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