Trump Issues Investment Policy Directive: A Return to Open Investment Policy, Except for China

I. Summary

On February 21, 2025, President Trump issued a national security policy memorandum entitled America First Investment Policy (Policy Directive). The Policy Directive reiterates an open investment policy with respect to investors from allied and partner countries while outlining further restrictions on inbound and outbound investment to and from China and other so-defined foreign adversaries.  

The Policy Directive is consistent with the Trump Administration’s approach of promoting U.S. technological competitiveness and manufacturing independence through deregulation and encouraging investment in U.S. industry. At the same time, it projects a tough-on-adversaries approach—defined to include China (including Hong Kong), Cuba, Iran, North Korea, Russia, and the Maduro regime in Venezuela—by describing additional measures to restrict investment from these countries, which in most cases is already non-existent or very limited, and to incentivize investors from other countries to reduce their ties to China.

The Policy Directive sets forth Administration policy, but implementation will fall to regulations and other policy actions to be implemented primarily by the Department of the Treasury (Treasury), in consultation with certain other agencies of the U.S. government. A significant portion of the Policy Directive involves measures to be implemented by the Committee on Foreign Investment in the United States (CFIUS), which is chaired by Treasury.  

In Section II below, we outline some of the elements of the Policy Directive that are likely to have the most significant impact on investors. In Section III, we provide a more detailed breakdown of the policy statements in the Policy Directive.

II. Key Takeaways

As we had predicted, the Policy Directive indicates that (1) investors from allied and partner countries will likely benefit from more predictable and efficient CFIUS reviews, and (2) Chinese investments, which already were generally unable to make it through the process, will likely face a presumption of prohibition. While some portion of the Policy Directive is simply a restatement or formalization of past practice, it also hints towards some changes that could have a material impact—for the better for allied country investors and for the worse for Chinese investors.

The Policy Directive signals the potential for increased complexity in outbound investment to China by U.S. persons, expanding the scope of, and limiting the exceptions to, the recently-effective outbound investment restrictions administered by the Department of the Treasury (Treasury).

Key takeaways for investors include the following:

• Foreign investment is welcome again (with an asterisk*). After a Biden Administration that was, at best, lukewarm on welcoming foreign investment, with a CFIUS process that often left investors from allied and partner countries feeling battered and bruised, the unambiguous statement recognizing the value of foreign inbound investment, including in emerging technologies and including from sovereign wealth funds, is a notable shift.  

This welcoming stance could manifest in concrete ways, such as the creation of a fast-track procedure (or further clarification of the criteria for clearance through the existing declarations process) to favor investors from allied or partner countries in specific sectors.

*However, given this White House’s willingness already to weigh in on specific transactions, the politicization of the process under the Biden Administration could persist, with risk that the outcome of some transactions could be affected by their alignment with the Administration’s political agenda. Further, the Policy Directive refers to partners and allies, but without reference to formal definitions, leaving unclear which countries (beyond treaty allies) are included.

• The technologies that could trigger CFIUS jurisdiction over non-controlling investments (including for non-Chinese investors) could materially expand. The Policy Directive contemplates the expansion of technologies defined to be “emerging and foundational,” which could sweep non-controlling investments into a broad range of technologies into the purview of CFIUS. This could foreseeably include a wider range of technology companies, with significant impact on investments in companies engaged in biotechnology and advanced work using artificial intelligence, which today are subject to very limited controls under export regulations.
   
• Chinese investment in the United States (including greenfield investment) will find ever fewer open doors. Chinese investments into the United States, already facing significant hurdles, will be possible only into the most benign companies and industries. With a likely presumption against relying on mitigation agreements to resolve any national security concerns with Chinese investment and a presumption of prohibition for any non-passive Chinese investments into certain critical sectors, any transaction involving a U.S. business with any national security sensitivity will stand a very low chance of approval.

The more significant change for Chinse companies would be an expansion of rules (or introduction of new legislation) to allow CFIUS review of greenfield investment even in urbanized areas. This expansion, likely to be limited to investors from foreign adversaries, could mean, for example, that Chinese-owned companies could not open offices or start businesses in strategic sectors, which could have a significant impact on their ability to grow organically in the United States. Such authority has been proposed before, but with Administration support, it may be more likely than before to come to pass.

The strongly negative messaging on investment from China reflects the views of key officials in the White House and is consistent with the expressed views of many other nominees or appointees in the Administration. We would not rule out the possibility, however, that the approach towards China, or at least particular Chinese investments, could shift as part of a deal on a trade issue that is a competing priority for the President.

• Non-Chinese investors will still feel the burden of their ties to China. For a number of years now, CFIUS has scrutinized non-Chinese investors to understand their ties to China (including R&D, JVs, and manufacturing in China, and overall revenue dependence on China). In some cases this has led CFIUS to impose hugely burdensome mitigation and, occasionally, to recommend prohibition. The Policy Directive does not necessarily suggest that such scrutiny will be relaxed. However, it does have some constructive language that suggests that CFIUS may be more willing to work with companies that show that they understand the risk that CFIUS perceives and are taking steps to distance themselves from this risk. 
   
• U.S. investors into China may face increasing burdens. The recently effective outbound investment regulations target the semiconductor industry, high performance and quantum computing, and artificial intelligence and provide for a number of meaningful exceptions. These restrictions may be expanded to include additional sectors, such as aerospace, advanced manufacturing, and biotechnology. Further, some of the existing exceptions, such as those for limited partner investments and investments in publicly traded securities, may be narrowed or eliminated. These changes could significantly narrow the scope for U.S. persons to invest in China and lead many investors to derisk by avoiding Chinese investment altogether or passing or conditioning their investment in non-US funds on those funds not making a broad range of investments in China.

III. Elements of the Policy Directive

A. CFIUS

• The Policy Directive contemplates specific measures to incentivize investment from allies and partners.
  
  The Policy Directive matches rhetoric with specific policy prescriptions that could have a meaningful positive impact on investors from allied and partner countries.
  
  
  • The Policy Directive states that the policy is to preserve an open investment environment, specifically noting its value in ensuring growth of artificial intelligence and other emerging technologies.
     
  • It specifically calls out sovereign wealth funds (SWFs) from allies and partners. This is notable both because it clearly signals that these countries are not lumped in with China in the context of the Policy Directive and because it pushes back against skepticism that some in the security community have had due to the engagements some of these countries and SWFs have had tied to China (but see the note further below about the continuing relevance of China ties).
     
  • It calls for the creation of an “expedited ‘fast-track’” process, based on objective standards” from specified allied and partner sources.  This could include, for example, CFIUS issuing guidance describing transactions that would likely receive approval if filed as a declaration such as transactions involving investors from specified countries that have already been cleared by CFIUS within a certain time period or have a history of cooperation with CFIUS. CFIUS may also use its authority to waive the mandatory filing requirements for certain sovereign wealth funds that operate independently from their respective governments and have a history of cooperation with CFIUS.
     
  • Passive investment will continue to be welcomed and remain outside the scope of CFIUS review. While the Policy Directive’s statement that passive investment is welcomed from “all foreign persons” nominally would cover Chinese investment, the threshold for Chinese investment being considered non-passive is probably exceedingly low, such that investments other than in publicly traded securities will often not qualify.
     
• While encouraging investment from partners and allies, investor ties to China will still be an important factor in CFIUS reviews of non-Chinese investors.
  
  Non-Chinese investors may nonetheless have an elevated threat profile if they have any number of types of ties to China. These could include Chinese ownership, commercial ties to China (R&D, JVs, revenue dependency), geopolitical ties of the investor’s home country to China, and other ties that the investor has unknowingly to China.
  
  The Policy Directive indicates that such factors will continue to be a meaningful part of CFIUS’s risk assessment of investment by non-Chinese companies. It further notes that restrictions on investment in sensitive areas (critical technology, critical infrastructure, personal data, etc.), the likelihood or stringency of mitigation will be “proportional to their verifiable distance and independence” from Chinese government points of leverage.
   
• No Chinese investment in “strategic” sectors.
  
  Transactions involving investors from China and other “foreign adversaries” into certain critical sectors (technology, critical infrastructure, healthcare, agriculture, energy, raw materials, “or other strategic sectors”) are expected to be fully restricted.
  
  This will likely have a limited impact as very few such transactions have been approved in the past eight years.
   
• Chinese investment in other sectors would require either a completely benign target or risk that can be eliminated within a defined time. No behavioral mitigation.
  
  For investments in other sectors, CFIUS will only consider three options: (1) approve without mitigation, (2) carveout the source of the risk by a time certain, or (3) recommend prohibition. The Policy Directive suggests CFIUS will approve a transaction only if the target is completely benign or if any risk posed by the transaction can be mitigated through “concrete actions that companies can complete within a specific time,” which implies structural mitigation, such as carving out and divesting a part of the U.S. business. Otherwise, if a transaction poses a national security risk that is inherent to the U.S. business, it will not be permitted to go forward.
  
  This too is largely a reflection of how CFIUS has been treating such investments since 2018, in so far as CFIUS has generally been unwilling to clear Chinese investment based on a complex mitigation agreement.
   
• CFIUS authorities could be expanded to include “greenfield” investments, though likely only for foreign adversary investments.
  
  Pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), CFIUS already has greenfield jurisdiction (i.e., where there is no existing business) based on proximity of real estate to sensitive locations. FIRRMA, however, carves out real estate in urbanized areas, which is likely what the Administration is seeking to cover with respect to Chinese investments in strategic sectors. To remedy this, the Administration could seek new legislation that may have a broader impact by subjecting substantially more foreign investments to CFIUS jurisdiction. Alternatively, and more likely, CFIUS can take advantage of language in FIRRMA that allows CFIUS real estate jurisdiction even in an urbanized area if prescribed by CFIUS in regulations in consultation with the Secretary of Defense.
   
• Technologies defined to be “emerging and foundational” technologies will likely expand, expanding CFIUS jurisdiction for all investors.
  
  “Emerging and foundational technologies” are a form of “critical technologies” for CFIUS purposes. Expanding what technologies are emerging and foundational technologies will expand the types of transactions subject to CFIUS “covered investment” jurisdiction (i.e., over non-controlling investments) and potentially those subject to a mandatory filing requirement.
  
  The Department of Commerce (Commerce), which has been charged to date with defining such technologies, has been criticized as being too slow to designate technologies as emerging or foundational. Personnel changes and appointments at Commerce suggest the potential for a significant shift in how it approaches the definition of emerging and foundational technologies, likely much more willing to sweep in technologies regardless of the willingness of allies and partners to do so.

B. Outbound Investment

• Outbound restrictions may be materially expanded to include new sectors, including, e.g., biotechnology, aerospace, and advanced manufacturing.
  
  Companies contemplating investment into China should review pending and future investments, in particular those that related to any technology enumerated on the White House Office of Science & Technology (OSTP) Critical and Emerging technologies list or the Made in China 2025 list.
   
• Significant exceptions in the recently-effective rules (e.g. for investment in publicly traded securities) may be limited or eliminated.
  
  The current outbound investment regulations contain exceptions for limited partner investments in private equity and venture capital funds in certain circumstances, greenfield investments and corporate expansions where they do not involve expansion to new covered activities, and investments in publicly traded securities. The Policy Directive suggests that these exceptions may be drawn back and that the Administration will pressure large-scale financial investors (such as pension funds, university endowments, and other institutional investors) from allowing their largess to support foreign adversary advances in strategic areas.