A Great Time to Restrict Outbound Investment

Nearly everyone recognizes China as an adversary determined to overtake the United States both economically and militarily. China’s “Made in China 2025,” “Military-Civil Fusion,” and “Strategic Emerging Industries” plans have been well documented and widely discussed. But for some reason—call it the globalist mindset or just a single-minded pursuit of profits—some lawmakers still appear determined to ensure Wall Street can invest billions in Chinese companies that pose serious risks to American security and competitiveness.

Fortunately, with a full Republican sweep in 2024 under an “America First” banner, Congress now has a clear mandate to address this issue before the end of the year and help advance President Trump’s agenda.

During Trump’s first term, he took decisive action against China’s trade abuses while calling out U.S. politicians and business leaders for selling out our country. While tariffs were the most widely discussed response to these abuses, Trump pursued several other measures to protect America’s strength and prevent careless behavior by American economic actors. One of these actions was Executive Order 13959, which prohibited U.S. investment in companies tied to the Chinese military and their subsidiaries. It also forced U.S. stakeholders to divest any of their existing holdings in such companies. Such investments provide Chinese firms with not only capital, but also intangible benefits that accrue to U.S.-invested companies, including enhanced legitimacy in international markets, management support, networking, and technology sharing.

Unfortunately, this action was significantly weakened by the Biden administration, which removed the divestment requirements and provisions targeting subsidiaries, creating loopholes and allowing American financial institutions to continue profiting from investments against America. While additional restrictions will take effect in January after four years of delays, they will still only apply to new investments and exempt publicly traded securities.

Passing legislation to address this issue before the end of the year is critical. Lawmakers attempted to attach reforms to last year’s National Defense Authorization Act (NDAA), but they were stripped out by the House despite passing the Senate overwhelmingly by a vote of 91-6. Now, Congress is considering attaching new legislation to this year’s NDAA. This legislation would close the loopholes mentioned above, codify Trump’s executive order, signal institutional support for the policy change, and provide additional tools for Trump’s Secretaries of Treasury, Commerce, and State to fully crackdown on malinvestment in China.

What Americans likely do not realize is that many of these investments are funded with their tax dollars, pensions, and savings. For example, under current law, the federal government’s own Thrift Savings retirement plan can still legally invest in malevolent Chinese companies (though its board has recently divested). This year, the House Select Committee on the Chinese Communist Party also released a report that found just two Wall Street firms, Blackrock and MSCI, have invested over $6.5 billion (largely of Americans’ savings) in 63 Chinese companies that the U.S. government has flagged or sanctioned for ties to the Chinese military or human rights abuses.

These investments are also going to companies that compete in areas of advanced technology with grave national security implications like semiconductors, artificial intelligence, quantum computing, and surveillance software. These technologies are at the forefront of innovation and present obvious “dual use” capabilities, meaning they can and will be harnessed by China’s military to achieve dominance over the United States. Another report by the Select Committee found that just one U.S. venture capital firm, Walden International, has invested $2.2 billion in over 140 Chinese semiconductor companies, some of which helped fund China’s largest foundry. Now, cell phones and chips made by China’s Huawei are beginning to seriously threaten the market dominance of Apple iPhones and their TSMC chips.

Lawmakers have clearly noticed the threat of ascendant Chinese companies in recent years and have taken other steps to fight back. In 2022, for example, they rightly recognized the importance of reshoring semiconductor production and passed the CHIPS and Science Act in 2022, which is expected to invest over $50 billion in domestic chip production. Considering this action, it defies logic to allow American financial institutions to remain invested in the Chinese semiconductor companies that taxpayer dollars are explicitly competing with for reasons of national security.

This year, lawmakers also recognized the danger of allowing America’s most popular social media app, TikTok, to be owned or controlled by China and passed a law requiring it to be sold. But American investment firms like Walden, Sequoia, and GGV Capital have invested billions in TikTok’s Chinese parent company, ByteDance, as well as scores of Chinese AI companies. If the United States is truly concerned about Chinese surveillance and censorship, why would lawmakers continue to allow U.S. investors to provide financing for its greatest perpetrators?

One does not need to be a central planner or a war hawk to recognize that the principle of “free markets” should not extend to investments in the military and surveillance technologies of America’s greatest adversary. This is especially true when that adversary does not itself recognize “free market” principles and has explicitly sought to eliminate the distinction between military and civilian markets in its own economy. In this case, the “free market” is invoked not as a political principle, but as a circuitous defense of plainly private interests. As American Compass chief economist Oren Cass has explained:

Americans invest in China as private individuals and firms. They use any control that they can exercise, or data and technology that they can access, to advance their private interest—generally, without consideration of their nation’s interests. They subject themselves, meanwhile, to the control of an authoritarian government that has shown no compunction manipulating foreign investors and leveraging market access to advance its national interest… If an American investor or firm were somehow to establish sufficient control to act contrary to the CCP’s interest in China, the CCP could simply expropriate the assets. None of this is true when PRC-controlled entities make investments in the American private sector.

While a more expansive hard break from China remains desirable, outbound investment restrictions for obviously strategic technologies are an eminently reasonable baseline that would undoubtedly pass overwhelmingly on a bipartisan basis if given a vote.

In 2024, voters once again recognized that major changes are needed to restore American greatness. This restoration will require America’s financial institutions to recognize our nation’s broader interests and values, especially if they would like to retain the trust of the American people. Congress has an opportunity to hold these institutions accountable by attaching legislation restricting outbound investment to the 2025 National Defense Authorization Act, which must pass by the end of this year. Punting this issue for another year (or indefinitely) will allow Americans’ savings to remain invested in China’s war machine and would withhold useful tools for advancing the Trump administration’s “America First” agenda.