Smart Machines and Smarter Policy: Foreign Investment Regulation, National Security, and Technology Transfer in the Age of Artificial Intelligence

Abstract

The Foreign Risk Review Modernization Act, a bill introduced to Congress in 2017 that seeks to strengthen the Committee on Foreign Investment in the United States (CFIUS), has the potential to increase restrictions on Chinese companies investing in the U.S. artificial intelligence (AI) industry. Although the bill addresses legitimate national security concerns related to the military applications of AI, it also has the potential to negatively impact the U.S. AI industry and the U.S. economy as a whole. Currently, the combination of a Chinese government focused on strategic technology acquisitions, the open and diffuse nature of AI systems, the off-the-shelf nature of defense technology procurement, the integrated Chinese and U.S. AI industries, and the connection of Chinese tech companies to the Chinese Communist Party create a pipeline for technology transfer from U.S. companies to Chinese government entities. Given the vague nature of what constitutes a national security threat according to CFIUS, past high profile CFIUS action against Chinese companies investing in the U.S. technology sector and an emerging bipartisan consensus that CFIUS needs to be strengthened, there is a strong potential for new foreign investment restrictions. Restricting Chinese investment in the U.S. AI industry, however, may be counterproductive, because it may negatively impact U.S. economic competitiveness by reducing the venture capital pool for AI, potentially driving away top talent and causing AI research and development centers to relocate elsewhere. Instead of increasing restrictions, a smarter policy would be to continue utilizing CFIUS risk mitigation measures in a non-discriminatory manner, while increasing government funding for AI research and development and increasing visas for science and technology graduate students who are foreign nationals.