The “America First Investment Policy” – Implications for International Investors

On February 21, 2025, President Trump issued the “America First Investment Policy” (the “U.S. Investment Policy”)[1]. The U.S. Investment Policy contains both broad and specific guidelines regulating foreign investment into the United States. This article will examine the key features of the U.S. Investment Policy and its potential practical impact on international investors from around the world.

What the U.S. Investment Policy Covers

The U.S. Investment Policy can be divided into five categories, as follows:

General Investment Principles: While not tied to any laws or regulations apart from the U.S. Investment Policy itself, these principles contain important clues that suggest U.S. investments from allied and partner countries are welcomed and will be facilitated.

CFIUS: The U.S. Investment Policy contains many provisions concerning the Committee on Foreign Investment in the United States (CFIUS), which regulates inbound investment into the United States. Most of these provisions codify the current practice of CFIUS, including pursuant to the implementation of the Foreign Investment Risk Review Modernization Act of 2018 and its detailed regulations by both the first Trump administration and the Biden administration. There are, however, important new additions that are within the remit of existing CFIUS laws for CFIUS to implement without the need for Congress to pass new laws. 

Greenfield Investments: This refers to non-U.S. businesses establishing subsidiaries in the United States without acquiring or investing in an existing U.S. business. While not codified into law, CFIUS practice has over many years excluded greenfield investments from CFIUS’ jurisdictional remit due to the lack of an “investment”. The U.S. Investment Policy proposes to enact laws with the Congress to regulate these activities.

Reverse CFIUS: This refers to the regulation of outbound investment by U.S. investors, a concept that was created under the Biden administration.^[2] The U.S. Investment Policy contains many new provisions suggesting an expansion of reverse CFIUS to new sectors and investment activities.

Restrictive Policies: The U.S. Investment Policy reiterates restrictive policies aimed at China, which were either promulgated or implemented under the Biden administration. There are also references to escalatory actions which, if implemented, would significantly impact global trade.

Many of the policies and principles contained in the U.S. Investment Policy, which are targeted at China, are not new and are mere restatements of existing practice or laws and regulations that have already been implemented by the prior Biden administration. What is new is the implicit requirement for other investors to “choose sides” as a condition to freer access to the U.S. market.  

Categories of International Investors

The U.S. Investment Policy applies to all non-U.S. investment into the U.S. However, not all investors will be treated equally based on the principles set forth in the U.S. Investment Policy. Non-U.S. investors can be divided into the following categories.

Category 1: Canada, the United Kingdom, Australia, and New Zealand, who are the other four members of the “Five Eyes” alliance that are “excepted investors” under CFIUS, such that CFIUS rules on minority investments do not apply to them.

Category 2: The European Union, which generally is accorded the same deferential scrutiny as Category 1 jurisdictions, except that they are not “excepted investors” under CFIUS.

Category 3: U.S. allies in the Middle East, whose investment into the U.S. may be explicitly encouraged under the U.S. Investment Policy but where concerns about links to China will also be relevant. 

Category 4: U.S. allies in the Asia Pacific, such as Japan, Korea, and Singapore, who are in this category due to the fact that their businesses are oftentimes intertwined with the Chinese economy, which increases their U.S. investment risk pursuant to the U.S. Investment Policy and recent implementation of CFIUS under the Biden administration.

Category 5: All jurisdictions that are not in Categories 1-4 and 6.

Category 6: “Foreign adversaries” as defined in the U.S. Investment Policy, being China (including Hong Kong and Macau), Cuba, Iran, North Korea, Russia, and Venezuela.

Analysis of Specific Items and their Potential Impact on International Investors From Around the World

General Investment Principles and the Implicit Requirement to Choose Sides: The U.S. Investment Policy contains general statements encouraging non-U.S. investment in the U.S., which do not deviate in any material way from prior statements of intent. Namely, the U.S. has an open system that allows foreign investment subject only to restrictions for national security.

With respect to specific statements of intent, investors in Category 3 jurisdictions should welcome the statement “investment in our economy from allies and partners, some of whom have tremendous sovereign wealth funds, supports the national interest.” Given that the world’s largest sovereign wealth funds are concentrated in the Middle East, this statement should provide comfort that the deployment of sovereign funds into the United States is not only welcomed but encouraged.

That said, the U.S. Investment Policy contains two statements that suggest investors will need to “choose sides”, as least as it relates to critical technology, critical infrastructure, and data rich targets. Namely, “investors’ access to United States assets will ease in proportion to their verifiable distance and independent from the predatory investment and technology-acquisition practices of the PRC and other foreign adversaries or threat actors” and “requirements that the specified foreign investors avoid partnering with United States foreign adversaries.”

These two statements, along with references to “PRC affiliated persons”, codify the existing practice of CFIUS under both the first Trump administration and Biden administration, where CFIUS scrutinized the Chinese operations of non-U.S. investors, in particular from Category 4 jurisdictions. Japan is a particular target, as evidenced by the recent denial of Nippon Steel’s proposed acquisition of U.S. Steel (Biden administration), and the requirement for Softbank to undertake not to share any non-public information in connection with its investment in Cruise with its other portfolio companies in China (first Trump administration). Given the migration of Chinese founded and Chinese reliant companies to Singapore, such as Bytedance and Shein, CFIUS scrutiny of Singapore based companies and their China ties have naturally intensified. 

Investors in Category 3 jurisdictions should also take note of the implicit demand in the U.S. Investment Policy to choose sides and consider solutions such as separating investment arms or investment funds, so those that those who invest in the United States do not have simultaneous exposure to China. 

CFIUS: With respect to CFIUS, the U.S. Investment Policy contains provisions that i) restate CFIUS rules and regulations, ii) add or amend current policy and iii) codify existing practices of CFIUS.

With respect to i), the reference to a “fast track” approval process is the same as the present simplified CFIUS declaration filing with a 30-day review period.

With respect to ii), the “entirely passive” exemption in CFIUS is amended to also include the requirement that the passive investor not have any “voting” rights, in addition to no board, governance, and decision-making rights.

With respect to iii), in addition to the prior focus on technology and data rich targets, the U.S. Investment Policy adds new sectors of concern as it relates to “PRC affiliated persons” investments, namely infrastructure, healthcare, agriculture, energy, raw materials, ports, and shipping terminals.^[3] Again, PRC affiliated persons can refer to any investor who has significant exposure to China even though it is not based there, such as investors from Category 4 jurisdictions.   

Furthermore, there is a directive to expand the definition of “emerging and foundational technology” under CFIUS, which is one type of “critical technology” under CFIUS that is subject to stricter investment scrutiny as to all non-U.S. investors except Category 1 investors.^[4]

Of particular interest is the provision eliminating “open-ended mitigation”, even for investments from “foreign adversary” jurisdictions. Mitigation is a process by which CFIUS approves a transaction, but imposes mitigation undertakings on the transaction parties, oftentimes with independent third-party monitors. The requirement for “concrete actions” with a “specific time” is meant to “reduce administrative burden and increase government efficiency.” One interpretation of this provision is that mitigation may be eased, even for Chinese investment, while another interpretation is that CFIUS going forward will simply not bother with mitigation as to Chinese investment but just deny it outright.

For investors in Category 4 jurisdictions, expedited or simpler mitigation terms, such as “internal firewalls” between Chinese and U.S. operations, may be less intrusive than prior open-ended commitments, such as board observers.

For investors in Category 1-3 jurisdictions, the explicit reference to increasing efficiency, coupled with the general initiative through DOGE to eliminate government spending, may mean fewer CFIUS resources will be allocated to simplified declarations and notice filings, which can expedite approvals for investors in these low-risk jurisdictions. 

Greenfield Investment: Acknowledging the need for Congressional action, the U.S. Investment Policy recommends expanding CFIUS or creating new legal controls on greenfield investments “to restrict foreign adversary access to United States talent and operations in sensitive technologies (especially artificial intelligence)”. This action may be intended to prohibit Chinese tech majors from establishing U.S. R&D subsidiaries who then target Chinese nationals in the U.S. or Chinese background U.S. citizens or permanent residents for employment in the U.S. without the need to repatriate them back to China or another non-U.S. jurisdiction.^[5]

Separately, the U.S. Investment Policy contains a standalone provision stating that environmental reviews of any investment over US$1 billion will be expedited. This can be a reference to non-U.S. investment in manufacturing facilities or other capital-intensive industries.

Reverse CFIUS: Although reverse CFIUS is targeted at U.S. investors, it still matters to non-U.S. investors who receive investment from U.S. investors, such as limited partners in investment funds where the general partners are not American. In particular, many of the major U.K. and European global private equity funds receive some or perhaps most of their limited partner commitments from U.S. investors, including ones specifically singled out in the U.S. Investment Policy’s reverse CFIUS provisions, namely U.S. pension funds and university endowments.

The provisions on reverse CFIUS both reaffirm existing rules and practice, as well as expand their remit beyond what was previously contemplated. With respect to the former, the U.S. Investment Policy reaffirms the concern of China’s Military-Civil Fusion strategy as the basis for restricting U.S. investment in specified sectors of China’s economy. With respect to the latter, in addition to the existing sectors of artificial intelligence (existing restrictions only apply to the extent the target uses computing power over and above a specified threshold), quantum computing, and semiconductors, the U.S. Investment Policy adds the new sectors of biotechnology, hypersonics, aerospace, advanced manufacturing, and directed energy. While hypersonics and directed energy have direct military applications, and aerospace arguably has dual-use capabilities (especially given that most Chinese aerospace companies are state-owned), the sectors of biotechnology and advanced manufacturing are arguably civilian. In fact, to the extent there continues to be private equity and venture capital investment in China, biotechnology and advanced manufacturing were previously viewed as “safe spaces” given that they are generally not subject to investment restrictions on the Chinese end as well. Accordingly, the addition of biotechnology and advanced manufacturing to the list of prohibited investment sectors may further dampen U.S. investment in the Chinese market.

Restrictive Policies: The restrictive policies in the U.S. Investment Policy target trade and investment with China.

On the investment front, the provisions on the Holding Foreign Companies Accountable Act (HFAA) and variable interest entity (VIE) structures, while not mentioning China by name, are clearly targeted at China. Sanctions and prohibitions on U.S. investment in the public securities of specified “Chinese Military-Industrial Complex Companies”, were more explicit.

The VIE structure is used by Chinese companies to receive U.S. private equity and venture capital investment as a workaround to China’s foreign investment restrictions. Ironically, through its new oversight of overseas listings as of March 2022, China’s securities regulator has gradually phased out VIE structures, requiring that they be dismantled as a condition to an overseas listing (and if they cannot be dismantled, the issuer’s overseas listing application will be denied).

The implementation of the HFAA, which threatens de-listing from U.S. exchanges in the event the U.S. Public Company Accounting Oversight Board (PCAOB) cannot adequately access the audit work papers of listed issuers, has been focused on Chinese issuers who previously denied full access to such work papers to the PCAOB, citing Chinese national security laws. China also has a confidentiality and archives law that could theoretically be used to deny all or some of the information contained in audit work papers, meaning Chinese issuers currently listed in the U.S. may encounter a situation where they cannot please both masters.^[6] The PCAOB under the Biden administration conducted thorough audit reviews in Hong Kong, after which it certified that the companies selected for audit were in compliance.

Now that the HFAA has again been mentioned as a potential tool against Chinese interests, the threat alone may encourage Chinese companies currently listed on U.S. exchanges to consider secondary listings in Hong Kong or to leave the U.S. capital markets altogether, as was the case with state-owned enterprises previously. Importantly, the use of U.S. capital markets as a geopolitical weapon in a way vindicates the Chinese authorities’ phasing out of VIE structures and non-approvals of applications to list in the U.S. The U.S. listing, with its lower standards for listing and governance as compared to Hong Kong, was the primary exit for both founders and investors back when U.S. investment in China’s technology ecosystem was fulsome. The end of this exit route, along with reverse CFIUS and China’s own regulation, effectively ends this prior ecosystem.

On the trade front, the U.S. Investment Policy initiates a review on the suspension or termination of the U.S. – China tax treaty. It also links China’s most favored nation trade status and WTO membership to “the deindustrialization of the United States and the technological modernization of the PRC military. We will seek to reverse both those trends.” Following through with any of these actions would further disrupt U.S. – China relations.

Importantly, the reference to “the deindustrialization of the United States”, along with recent tariff actions or threatened tariff actions across the board (steel and aluminium) and against allies, strongly suggest that these trade actions are not specific to China, and that Category 4 jurisdictions in particular should be under no illusions about what may come given that they mostly run large trade deficits with the U.S. as well.

Non-U.S., Non-Chinese Investors’ Response to Reverse CFIUS and Restrictive Policies: The exit of U.S. investment in emerging technology fields in the Chinese market due to reverse CFIUS and these restrictive policies, namely the fields of artificial intelligence, quantum computing, semiconductors, biotechnology, and advanced manufacturing, arguably creates a vacuum for investors in Category 1-5 jurisdictions.

However, segregating investment funds by region or creating parallel funds without U.S. limited partners that invest in China may be required in order to avoid or decrease CFIUS scrutiny. For strategic investors who may not be able to segregate their internal U.S. and China operations, the U.S. Investment Policy may lead to difficult decisions internally about which side to choose.  

For more information on how we can help you with U.S. corporate and compliance matters, please contact Charles Wu at Charles.Wu@clydeco.com