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Senate Passes Outbound Investment Screening Legislation

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The bipartisan legislation would require review of U.S. investments in critical sectors in countries of concern, including China.

The Senate on Tuesday voted 91-6 in favor of legislation to require American companies to notify the federal government when they plan to invest in key industries in countries, including China, Russia, Iran and North Korea.

The legislation was included as an amendment to the National Defense Authorization Act (NDAA) and is a version of the bipartisan Outbound Investment Transparency Act, introduced by Sens. Bob Casey (D-Pa.) and John Cornyn (R-Texas). The Senate is expected to vote on the full NDAA by the end of the week, and the legislation will then need to be reconciled with a previous House version, likely to happen sometime this year.

Under the outbound investment legislation, U.S. companies would be required to notify the Treasury Department when they invest in China and other countries in sectors like semiconductors, microelectronics, AI, hypersonics, satellite-based communications, and more. Investments covered under the legislation include joint ventures, greenfield investments, and “know how” like technological transfers or board representation.

“The United States is at a crossroads; we can take control of our own future or we can let China eat our lunch,”  Casey said. “The Outbound Investment Transparency Act is a strong first step to give the U.S. insight into the risks of allowing American national security technology and know-how get into the hands of our adversaries.”

Added Cornyn: “When American companies invest in technology like semiconductors or AI in countries like China and Russia, their capital, intellectual property, and innovation can fall into the wrong hands and be weaponized against us. This bill would increase the visibility of these investments, which will help the U.S. gather the information needed to better evaluate our national security vulnerabilities, confront threats from our adversaries, and remain competitive on the global stage.”

Indeed, U.S. companies and even the government have been all too willing to hand over technological expertise to strategic rivals like China, either to manufacture products there or in an attempt to access the Chinese market. As I wrote about on Tuesday, everyone from Hollywood filmmakers to the auto industry have bent over backward to placate Chinese Communist Party (CCP) officials in the hopes of selling their products to Chinese consumers, with auto companies entering into joint ventures with Chinese companies that involved sharing technological expertise.

Then there are infuriating cases like this one, in which the Department of Energy very willingly sent production of vanadium batteries to China, handing over cutting-edge technology to our chief geopolitical rival and leading to layoffs of American workers.

As Casey noted in a recent op-ed:

 “The risk is more than mergers and acquisitions between U.S. firms and Chinese-government-backed companies. We are sending U.S. know-how, creativity, innovation, and expertise through non-traditional means, including U.S. citizens serving on boards of Chinese-government affiliated firms.”

The legislation passed by the Senate on Tuesday is a good first step in stopping this sort of thing from happening in the future. There’s no doubt that the United States has effectively shot itself in the foot over the decades by handing over so much of our innovative edge to China and other rivals, and that’s harmed both our national and economic security.

It’s too late to undo a lot of the damage, but at least we can stop the bleeding.

“The United States has never sat by and watched our adversaries bully the world,” Casey wrote. “We cannot allow global competitors to manipulate economic tools for national security gains and global dominance. The first step is knowing what kinds of risks we’re putting ourselves in.”

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