Balancing International Trade Policy with National Security: The Dilemma of China and Foreign Direct Investment in the United States

Abstract

With the People's Republic of China flush with US foreign reserves generated from a significant trade imbalance with the United States (US). Chinese firms have begun to exercise foreign direct investment by acquiring US corporations. Considering the emerging military threat of China in the Pacific Rim area and economic issues involving the under-valuation of the Chinese yuan, this investment diversity strategy (beyond US Treasury debt) has resulted in serious questions being raised about whether national and economic security is at risk if these business transactions were to be consummated. Consequently, the Committee on Foreign Investment in the United States (CFIUS), the federal oversight commission reviewing the appropriateness of such transactions, has come under intense Congressional scrutiny. After evaluating the literature concerning the operations and performance of CFIUS, it is recommended that CFIUS share its operational performance on a quarterly basis with select committees in the US Congress; that mandated filings of specific categories of defense-related acquisitions be authorized; and that both CFIUS and the US President (and not the US Congress) continue to define what is ‘national security’.