An Altered U.S. Investment Environment
A new executive order changes America's investment policy
President Trump has issued an executive order entitled the America First Investment Policy which significantly alters the way in which foreign investment is permitted in the United States of America.
America’s investment policy is critical to our national and economic security. Welcoming foreign investment and strengthening the United States’ world-leading private and public capital markets will be a key part of America’s Golden Age. The United States has the world’s most attractive assets, in technology and across our economy, and we will make it easier for our overseas allies to support United States jobs, United States innovators, and United States economic growth with their capital.
Investment by United States allies and partners can create hundreds of thousands of jobs and significant wealth for the United States. Our Nation is committed to maintaining the strong, open investment environment that benefits our economy and our people, while enhancing our ability to protect the United States from new and evolving threats that can accompany foreign investment.
Investment at all costs is not always in the national interest, however.
This is a major change from the “all free trade is good for the US economy” mantra that has ruled US trade policy since the 1980s. While this is not the place for a lesson in Economics 101 or a departure into economic history, the fact that M (imports) are subtracted from the sum total that is the result of the GDP equation is sufficient to point out that when (X-M) is negative, which is to say that there is a trade deficit, the economy is contracting, all else being equal.
In the same way, while “investment in America” sounds as if it should always be positive, if it is described as “selling American assets and property to foreign countries,” it obviously isn’t in any and all circumstances. There are times where the sale of American products are advantageous to the American economy, such as the sale of American steel to foreign automotive manufacturers, and times when they are not.
Such as the proposed sale of US Steel to a Japanese steel company, just to give one example. The key factor, of course, is the amount of control that the purchase of the asset provides.
The United States will continue to welcome and encourage passive investments from all foreign persons. These include non-controlling stakes and shares with no voting, board, or other governance rights and that do not confer any managerial influence, substantive decisionmaking, or non-public access to technologies or technical information, products, or services. This will allow our cutting-edge businesses to continue to benefit from foreign investment capital, while ensuring protection of our national security.
This is an approach that bears some similarity to the way China regards foreign investment. While foreigners can invest in Chinese companies, and can even start up new businesses in China, they cannot own more than 49 percent of any Chinese business and the Chinese partner must always hold the controlling stake. This, of course, is why many of the big US tech companies which were originally so enthusiastic about pursuing the Chinese market quickly exited it once they realized that they could not control their Chinese subsidiaries.
While most of President Trump’s executive orders will attract considerably more attention and debate than the America First Investment Policy, it’s going to be important for entrepreneurs and business owners to pay attention to the various risks and opportunities that will be created by the adoption of this policy. For one thing, foreign companies looking to enter the US market will now require partners who can help them make passive investments and provide the various services that the foreign parties can no longer perform.
For another, small business owners looking to sell their businesses will have to restrict their list of potential buyers to domestic prospects. Either way, it will be important to contemplate the impact that the new America First policy will have on your business activities and investment strategies.
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I managed an office in Beijing for a few yrs, so had an up close view of the regulations that foreign firms had to follow. China knew it had a market that was valuable to global firms and made sure that it controlled access to its market (majority partner required to be Chinese) and equally important, how profit was used. Motorola was an example of a firm that was granted early access to Chinese markets but could not find a model to make it worth the effort. Google tried, as well. While the USA does not need to be equally Draconian in its approach to foreign investment, an America First legal framework should be instituted.