Foreign Investment Helps Boost U.S. National Security

| Matthew Slaughter and Michael Morell
Matthew J. Slaughter
Former member, Council of Economic Advisers in the Executive Office of the President
Michael J. Morell
Former Acting Director, CIA

President Donald Trump is currently on his first trip to China and East Asia. The visit comes at a time when America’s allies in the region are increasingly anxious about their security—which should rightfully be a major focus of the trip. But it is critical that our economic future with the region also be a key theme of the visit.

To boost America’s security ties to Asia, we should aim to boost our foreign investment from there as well. And to show America really is “open for business,” reviews of inbound foreign investment by the Committee on Foreign Investment in the United States (CFIUS) need to be more efficient and focused solely on security, not protectionism.

To suggest promoting foreign investment as a vehicle to boost national security may seem counterintuitive, especially after a presidential election full of sentiments against globalization. But the most important long-run determinant of a country’s national security is the strength of its economy. And the facts continue to show the many contributions foreign investment makes to America.

In 2015, the U.S. affiliates of foreign multinational companies undertook $253.7 billion in capital investment, which was 15.7 percent of all private-sector non-residential investment. These firms exported $352.8 billion in goods, or 23.4 percent of all U.S. goods exports. And these firms conducted $56.7 billion in research and development, about 16.7 percent of total U.S. private-sector R&D.

All these productivity-enhancing activities contributed to the 6.8 million employees of these U.S. affiliates, earning an average compensation of $79,040—about one-third above the average for all other private-sector U.S. jobs. These parent companies also create millions of good jobs at their suppliers.

Take Smithfield Foods, for example. The maker of Nathan’s Famous hot dogs put Smithfield, Va. on the map as the world’s largest pork processor and hog producer. In 2013, Smithfield Foods was acquired by the Chinese company Shuanghui International Holdings Ltd. Since becoming part of Shuanghui, Smithfield Foods has added more than 1,000 employees and is boosting its investment in the United States. In August, the company announced a $100 million investment in North Carolina that will add approximately 250 new jobs.

And yet, this acquisition raised questions—in particular, about risks to U.S. food security. Fortunately, the United States has a process in place to review these sorts of legitimate national-security concerns: CFIUS. Comprised of several government agencies and led by the U.S. Treasury Department, CFIUS is tasked to review mergers and acquisitions (M&A) to “ensure national security while promoting foreign investment.” To meet these twin goals, CFIUS often alters a transaction’s commercial terms to mitigate national-security risks. CFIUS reviewed and approved the Smithfield transaction.

Unfortunately, today the CFIUS process seems broken. Multiple sources indicate delays and roadblocks, with many proposed transactions being forced into a cycle of withdrawing from review and then refiling to start a new review. One report states that more than half a dozen proposed Chinese transactions are stuck in this purgatory; beyond China, other stuck transactions involve companies from long-established economic partners such as Singapore and Japan.

It is unclear whether these problems are being caused by insufficient resources at CFIUS to manage a growing influx of transactions, or by committee members pursuing protectionist aims. Regardless, CFIUS is sending a message that the United States is closed for business—and companies are taking notice. According to Bloomberg, Chinese investment in the U.S. this year has declined 51 percent compared to 2016 totals. Further, a recent survey from the advisory firm Brunswick Group found M&A advisors see Trump and CFIUS as having a large negative impact on foreign investment into America.

We strongly believe that CFIUS should reject transactions that threaten U.S. security—the recent rejection of Beijing-backed Canyon Bridge’s purchase of U.S. chip maker Lattice is one such example. Yet we also believe CFIUS should seek ways to approve transactions, not reasons to kill them.

This is even true when it comes to possible investments from China. Yes, CFIUS should be vigilant in pushing back against Chinese abuses and should reject any and all acquisitions that threaten America’s national security. But CFIUS should also welcome investment from Chinese companies that meet Western standards of transparency and business practices and that can have any security concerns mitigated.

A strong America is prosperous and safe. Foreign investment helps foster both. We hope that on his Asia-Pacific trip, the president encourages investment from Asia into the United States. We similarly hope that back here at home, the CFIUS process finds a way to work more efficiently. Both these changes would bring tangible economic and national security benefits to the United States.

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3 Replies to “Foreign Investment Helps Boost U.S. National Security”
  1. Our nation is a country comprised of foreigners thus the premise of this article is accurate. Yet it may not be CFIUS that is the problem but rather the subject matter. For example, Chinese investors allowed to invest in the US should be recognized as entities sanctioned by the Chinese Communist Party and as such, under CCP directives. While hot dogs cannot be considered dual-use, many other US businesses currently being targeted by Chinese foreign investors are. The problem for CFIUS is delineating between what a purported end product is and what it could be. Add to this the purposeful obfuscation of Chinese ownership structures by the CCP and one would find oneself facing a greater question; what will happen to foreign investment in US businesses should hostilities arise between China and the US? What will happen should the South China Sea predicament takes a turn for the worse and anti-American sentiment – by Chinese nationals and Chinese-Americans – arise within our borders? Asking CFIUS to both promote and protect US interests is a tall order. If forced to chose however, we should lean toward protection rather than promotion.

  2. Its one thing to wage economic warfare
    See DPRK and Russia Iran sanctions…
    The whole CFIUS process needs be made more transparent.
    In accordance with GATT we need a new superstructure with IC and DOD represented.
    CFIUS should be willing to give all stakeholders right to comment.
    See DIARPA and Professors Tetlock and Mellers Good Judgment -Foresight at The University of Pennslvania

    Open source based comment would allow more balanced discussion.

    Too many times the need for foreign investment can be overlooked to protect priväte actors.

    Thanks much Mr.Morrell

    1. CFIUS needs to be expanded beyond traditional M&A transactions. I agree with the premise that the US should stay open for business, but we must also acknowledge that potential adversaries, China in particular, use many methods outside of CFIUS scrutiny to harvest cutting edge innovation knowledge from the US tech industry. VC funding is one way, for example. Breakthroughs in AI, automation, robotics, etc, will undoubtedly have national security applications.

      Also, the reason China’s FDI into the US is down significantly in 2017 from 2016 has less to do with the CFIUS process and more to do with Xi and the CCP curtailing outbound investment and capital flight ahead of the 19th PC as part of a broad anticorruption campaign.

The Author is Matthew J. Slaughter

Matthew J. Slaughter is the Paul Danos Dean of the Tuck School of Business at Dartmouth, where in addition he is the Earl C. Daum 1924 Professor of International Business. He is also a member of the American Academy of Arts and Sciences, a Research Associate at the National Bureau of Economic Research; an adjunct Senior Fellow at the Council on Foreign Relations; a member of the academic advisory board of the International Tax Policy Forum; and an academic advisor to the McKinsey Global... Read More

The Coauthor is Michael J. Morell

Michael Morell, the former Acting Director and Deputy Director of the Central Intelligence Agency, is one of our nation's leading national security professionals, with extensive experience in intelligence and foreign policy.  He has been at the center of our nation's fight against terrorism, its work to prevent the proliferation of weapons of mass destruction, and its efforts to respond to trends that are altering the international landscape—including the Arab Spring, the... Read More

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