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Emergency Law Considered to Stop Chinese Takeovers

Emergency Law Considered to Stop Chinese Takeovers

What started with protectionist tariffs, then swiftly advanced to currency manipulation, has now progressed to the possible utilization of a 1977 law known as the International Emergency Economic Powers Act, which could allow President Trump to declare a national emergency in response to an “unusual and extraordinary threat,” allowing him to block transactions and seize assets. Yes, we are again talking about the Chinese.

Under the auspices of the Treasury Department and Treasury Secretary Steven Mnuchin, the U.S. is now not just Tweeting President Trump’s rhetoric, it is looking to punish China for what it sees as violations of American intellectual property rights. According to Bloomberg, acquisitions by Chinese firms in the U.S. fell to $31.8 billion last year from $53 billion the year before. Still, a large number considering that China is a communist society. While not all of China’s investment in the U.S. is directed at intellectual property, it is the most strategically important area of concern for the U.S. It only makes sense to keep sensitive technology out of the hands of other countries. The argument floated against halting Chinese investment in American companies is that by doing so we will limit investment capital needed by growing U.S. firms. This is not plausible. With the Trump tax cuts to business, along with what White House Chief Economic Advisor Larry Kudlow sees as solid 3% GDP growth, there should not be a shortage of corporate working capital. Commerce Secretary Wilbur Ross weighed in on the situation by saying, “There will be limitations on foreign investment.”

You only have to look as far as the financial markets and see that volatility has once again returned. The S&P 500 Index dropped 1.7 percent Tuesday, extending this month’s decline, on concern about heightened trade tensions between the world’s largest economies. Asian equity markets retreated Wednesday as well. The manner and time of tensions between China and the U.S. suggest that this volatility will be here for some time.

The question of what industries will specifically be banned to Chinese investment is still up for discussion. Areas such as semiconductors and 5G wireless communications are among those being mentioned. Once again President Trump is trying to level the playing field with China. Communist China does not permit foreign investment in a range of industries, from car manufacturing to telecommunications providers and rare-earth exploration. America is waking up none-to-soon to the fact that these sensitive technological and geological areas must be protected from foreign investment.

Obama administration policy was to review foreign investment in the U.S. on a case by case basis. Under Trump, this will be changed to a macro review of entire industries, as opposed to single companies. The security of the United States is of utmost priority. The fact that an administration is actually looking to protect its citizens by prohibiting foreign investment is a big step in the right direction. As with the tariffs and currency manipulation, it appears that eyes will be watching China as they invest in America, for the foreseeable future.

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