Since the 2020 campaign, President Joe Biden has emphasized that America seeks "competition rather than conflict" with China. In the 2023 State of the Union address, amid tensions with the Chinese government over a spy balloon that floated through American airspace, he returned to the notion, saying his administration was willing to "work with China where it can advance American interests" while also bragging the U.S. was in "the strongest position in decades to compete" with the country.
That message of productive, if a bit unfriendly, economic competition is increasingly at odds with the aggressive trade policies Biden is pursuing behind the scenes. Indeed, it's at odds with what prominent members of the administration, including the secretary of the treasury and the White House's top national security adviser, are now openly admitting in public speeches: The United States is escalating its trade war with China, and it is doing so by targeting the free movement of goods and money across the globe in new ways.
"Technology export controls can be more than just a preventative tool," national security adviser Jake Sullivan told a small crowd gathered at the Capital Hilton, just blocks from the White House, in a speech delivered last September. "If implemented in a way that is robust, durable, and comprehensive, they can be a new strategic asset in the U.S. and allied toolkit to impose costs on adversaries, and even over time degrade their battlefield capabilities."
Sullivan said the theory had already been put to the test once. After Russia rolled tanks and troops into Ukraine in early 2022, the United States responded with financial sanctions aimed at Russian President Vladimir Putin and his cronies. It also imposed severe export controls meant to hobble Russia's industrial and military might. In Sullivan's telling, this represented "the most stringent technology restrictions ever imposed on a major economy."
"Those measures have inflicted tremendous costs," Sullivan continued, "forcing Russia to use chips from dishwashers in its military equipment."
The "adversaries" that could be targeted with that "new strategic asset" would not be limited to those that had invaded their neighbors. For Sullivan, the apparent success of the export restrictions targeting Russia meant we might reshape how America conducts foreign policy, particularly with regard to China. America should abandon the idea that it must only maintain a relative lead over China in the development of key technologies, he said. Instead, the tools and tactics of an international trade war could be used as an economic complement to America's military arsenal—one that could effectively serve as an opening salvo in a real war.
Sullivan was speaking at a gathering of the Special Competitive Studies Project, a joint venture of tech and national security experts funded by a private foundation created by former Google CEO Eric Schmidt. Four days before the summit, the group published a lengthy report, co-authored by Schmidt and Robert Work, a deputy defense secretary under both President Barack Obama and President Donald Trump. The report crystallized many bipartisan worries about how China's technological advances might factor into a future war, and its conclusions mirrored Sullivan's: "Warfare will be waged with and against industrial and financial power and pit innovation ecosystems against each other."
What both Sullivan and the report describe could be called a total trade war: a conflict where the exchange of goods and money across borders is viewed through a military lens.
Much of the discussion is focused on the perceived necessity of controlling the world's supply of semiconductors, the tiny silicon chips that power the fastest and smartest computers. But the conflict has already spilled over into other realms.
In that September speech, Sullivan suggested the next step would be to restrict outward-bound capital investments too. American investments, he said, must not be permitted to "enhance the technological capabilities of our competitors."
Consider this a corollary to the Biden administration's more well-publicized Buy American mandates: a "Sell to Americans" rule—or, at least, a "don't sell to anyone the American government dislikes" rule. While the former mostly involves dumping billions of taxpayer dollars into questionable subsidies for semiconductors and other high-end tech manufacturing, the latter is aimed at policing how American investors and businesses spend their money. With the help of allied governments in Europe and Canada, the goal is to cut off huge swaths of global capital markets in order to curb investments in China.
The approach moves U.S. trade policy from a defensive posture to an offensive one, putting the nation's economy on what amounts to a war footing.
Over the past five years, America's trade war with China had targeted imports and sought to prop up domestic manufacturing in expensive and mostly ineffective ways. The new approach targets exports and investments in any technology the U.S. government deems vital to national security—a category that may be nearly limitless, given the government's propensity for stretching the limits of that term.
Much of this approach is being run through a shadowy governmental entity that draws together high-ranking officials from the federal military, intelligence, and political apparatus. It creates an environment where even domestic citizens and businesses are suspect—and where outbound capital investments in foreign countries must be scrutinized for giving potential succor to the enemy.
Militarized trade policy is a foolish and dangerous exercise that will further erode what remains of postwar norms about openness and free trade, boosting instead the zero-sum view that is causing more countries around the world to raise barriers to trade. If it takes hold, it will leave humanity less free and less prosperous. It might also lead to far greater calamity: If American officials are talking so openly about using economic policy as a form of military action—and thus, potentially, as acts of war—how long before other countries start taking them seriously?
At the center of the Biden administration's escalating war on trade and investment is a powerful government body that most Americans probably aren't aware of: the innocuously named Committee on Foreign Investment in the United States (CFIUS).
Created as a purely advisory agency by President Gerald Ford in 1975, CFIUS now includes high-ranking officials from the Departments of Commerce, Defense, Homeland Security, and State as well as the White House and the intelligence community. In 1988, amid a now-laughable panic about Japanese investors pouring money into American agriculture and industry, including the then-nascent semiconductor industry, Congress gave the committee the authority to block "mergers, acquisitions, or takeovers" of American companies by foreign investors, as long as the president signed off on the decision."
Part of Congress's motivation," the Congressional Research Service explained in a February 2020 report, "arose from concerns that foreign takeovers of U.S. firms could not be stopped unless the President declared a national emergency or regulators invoked federal antitrust, environmental, or securities laws."
CFIUS thus became a vehicle for sweeping, arbitrary presidential intervention into international business deals, executed under the guise of vaguely defined national security concerns.
George H.W. Bush was the first president to take advantage of these powers. In 1990, he ordered the China National Aero-Technology Import & Export Corporation to divest its acquisition of MAMCO Manufacturing, a maker of precision plastics used in aeronautical equipment. That authority would not be invoked again until 2012, when Obama blocked a Delaware-based company with Chinese subsidiaries from acquiring four American wind farms, one of which was located near a Navy base in Oregon. Four years later, he blocked a Chinese investment fund from buying AIXTRON, a Germany-based semiconductor firm that owned some American assets.
Trump also invoked those powers twice. In 2017, he blocked a Chinese investment firm from buying the Lattice Semiconductor Corporation, an Oregon-based chip design company. A year later, he made a much bigger splash by blocking Broadcom's $117 billion purchase of Qualcomm, one of the leading American chip-making companies. Though China was not involved in that purchase, the specter of American fears about China's technological advancements—specifically at the telecom company Huawei—was central to the decision. Without a domestic champion for the production of 5G telecom devices, Trump wrote in his executive order blocking the purchase, "China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover." In a March 2018 letter announcing CFIUS' decision, a Treasury Department official underlined the reasoning: the potential merger "could pose a risk to the national security of the United States."
Since its creation, CFIUS has operated inside a black box. It does not acknowledge that any specific investments are under review, and it is not required to publicly announce its decisions. In an annual report to Congress, CFIUS provides only limited details, like the number of investigations undertaken and, in broad strokes, the industries involved.
Those reports show that the committee was active in the late 1980s and early 1990s. But as the Japanese panic subsided, so did the committee's workload. From 1993 to 2005, it reported fewer than 82 investigations each year—down from a peak of 295 in 1990, when four of those investigations eventually reached the president's desk (although Bush took action only in the MAMCO case).
Lately, the previously sleepy CFIUS has been more active. It has investigated more than 600 transactions since 2017, about five times as many as it had in the five years before Trump took office.
It was also granted more power. The Foreign Investment Risk Review Modernization Act of 2018 broadened the committee's ability to intervene in transactions involving "critical" technology. Naturally, the committee gets to decide what counts as critical.
The Biden administration is now taking CFIUS to another level. In September, just days before Sullivan's speech, Biden issued an executive order instructing CFIUS to focus more attention on supply chains. Under the new guidance, the committee is charged with reviewing transactions for national security risks in several categories, including biotechnology, quantum computing, and climate adaptation. That means the committee's authority is expanding not only in breadth but in depth. Relative to the pre-2018 status quo, it can investigate more transactions and now has the authority to follow those transactions up and down the supply chain.
That executive order "puts us back ahead of the game," Sullivan said days after it was signed. That, he promised, was just the start. "Looking forward, we are making progress in formulating an approach to address outbound investments in sensitive technologies, particularly investments that…could enhance the technological capabilities of our competitors."
In December, Congress and the Biden administration took the first real step toward that goal. Tucked into the $1.7 trillion omnibus spending bill that sped through Congress before Christmas was a provision ordering the Treasury Department to produce a report detailing how a potential outbound investment screening mechanism would work and how much it would cost.
In other words, the federal government would for the first time scrutinize not just foreign investments in the U.S., but how American-based capital is invested abroad.
Trade and Tradeoffs
Outbound investment screening could be added to CFIUS mandate, or it could be handled by a new agency. Either way, officials are moving the plan forward."
We are considering a program to restrict certain U.S. outbound investments in specific sensitive technologies with significant national security implications," Treasury Secretary Janet Yellen, who also chairs CFIUS, said in an April 20 speech at Johns Hopkins University. Yellen framed the possible program in much the same way Sullivan had seven months earlier, as part of a broad effort to steer both exported goods and American investments away from China.
While the specifics remain vague, an outbound investment screening system of any kind "would substantially widen the scope of U.S. national security controls over investments that have traditionally been regarded as purely economic objectives," a trio of researchers at the Center for Strategic and International Studies (CSIS), a national security–focused think tank, warned in January.
In her speech, Yellen put a finer point on it: When economic and national security interests are in tension, she argued, national security must prevail. "Even though these policies may have economic impacts," she said, referring not only to the outbound investment screening proposal but also to export controls, "they are driven by straightforward national security considerations. We will not compromise on these concerns, even when they force tradeoffs with our economic interests."
This is a bipartisan impulse. Trump's aluminum and steel tariffs were enacted with a flimsy justification about how imported metals jeopardized national security. Biden has flipped that around. To qualify for subsidies included in the CHIPS and Science Act, for example, companies must pledge not to use the funds to expand operations in four countries, including China and Russia. The threat of scrutinizing private investments overseas signals another escalation.
All these maneuvers represent an overarching pattern—one that Sullivan helpfully laid out in that September speech at the Capital Hilton.
"We have to revisit the longstanding premise of maintaining 'relative' advantages over competitors in certain key technologies," Sullivan said. When it comes to "foundational" tech such as semiconductors and artificial intelligence, he argued, America should take a more active role to impede the technological advances of potential adversaries. "We must maintain as large of a lead as possible," he concluded.
That framework raises the stakes considerably. In the decades since the Cold War, America has been a leading advocate for lowering barriers to trade, in part because mutually beneficial exchanges foster peace: Nations that trade with one another have an incentive not to go to war. At its core, then, the argument for free trade requires separating the prosperity-generating economic sector from the zero-sum thinking that governs much of the rest of geopolitics.
But the Biden administration is building on the Trump administration's attempts to blur that line. Some former Trump administration officials are giving cover to the effort. In an October interview with The New York Times, the Trump-era national security adviser Matt Pottinger not only echoed Sullivan's framing of the U.S.-China relationship as one where America must maintain "as large of a lead as possible" but argued that doing so will mean actively inhibiting China's technological advancement.
"The Biden administration understands now that it isn't enough for America to run faster—we need to actively hamper the [People's Republic of China]'s ambitions for tech dominance," Pottinger said. "This marks a serious evolution in the administration's thinking."
For such officials, it is no longer enough for trade to make America more prosperous. They think it's at least equally important to prevent certain other countries from prospering too. It's an inherently militaristic outlook, one that views the entire global economy as part of a battlefield.
We tend to think about global trade in terms of physical stuff: container ships and the cargo they carry, from T-shirts to iPhones. Exports and imports are tangible things, easily conceptualized and counted.
As a result, we also tend to think about restrictions on trade as being policies that stop the exchange of those physical goods—or, as with tariffs, that make it more difficult or expensive to move items across borders.
But in reality, there are three broad layers to the network of global trade that has made the world so prosperous in recent decades. Finished products and their component parts are the top, the most "seen" part. Below that is trade in the raw materials and equipment necessary to produce those finished goods. At the base are the capital investments that support the expansion of industry in places where it previously did not exist.
For the first several years of America's trade war with China, almost all the action was focused on the top layer: Trump's tariffs, for example. Both Trump and Biden have also made aggressive use of the Commerce Department's so-called entity list, a collection of foreign businesses and nonprofits (including some universities) that are forbidden from buying certain items from American firms without special permission from the federal government.
The Trump administration added dozens of companies to the list; the Chinese telecom manufacturer Huawei was perhaps the most high-profile example. The list has continued to grow under Biden. Since December 2022, more than 40 Chinese companies have been added to the do-not-export list. One of the most significant additions was Yangtze Memory Technologies, a leading Chinese semiconductor manufacturer.
On March 23, another 14 Chinese firms were added to a separate Commerce Department list of "unverified" companies to which exports can be blocked unless the foreign companies agree to allow American inspections of their facilities. "Enforcing our export controls is a crucial part of protecting American national security," U.S. Deputy Secretary of Commerce Don Graves declared in a statement announcing that action. "We are committed to using all of the tools at our disposal to establish how advanced US technology is being used around the globe."
In keeping with that strategy, Washington has sought to expand the conflict into the two other layers of the global trading system. In 2018, for example, the Trump administration successfully lobbied the Dutch government to prevent ASML, a Netherlands-based firm that is the world's leading supplier of semiconductor manufacturing equipment, from selling its products to Chinese chip manufacturers. Shortly before leaving office, Trump placed China's top semiconductor manufacturing firm, the Semiconductor Manufacturing International Corporation, on the entity list, effectively banning any American company from selling to it as well.
Sullivan's September talk about the geopolitical power of export controls was a signal of the perceived success of those actions. In October, the Biden administration doubled down by issuing new rules aiming to block China's access to semiconductor manufacturing equipment, component parts of that equipment, and any design software that might be used to build that equipment or advanced, artificial intelligence–capable chips.
"With the new policy…the United States is firmly focused on retaining control over so-called 'chokepoint' (or as it is sometimes translated from Chinese 'stranglehold') technologies in the global semiconductor technology supply chain," writes Gregory C. Allen, a senior fellow at the CSIS. "In doing so, these actions demonstrate an unprecedented degree of U.S. government intervention to not only preserve chokepoint control but also begin a new U.S. policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill."
The final step seems obvious. Having targeted the global trade in semiconductors and the exchange of semiconductor-making equipment and know-how, the administration is now cranking up an investment-screening system that targets the lowest level of the trading system.
America is both joining and reinforcing a global trend. According to the United Nations Conference on Trade and Development, 63 percent of global investments were subject to a screening process last year, up from 52 percent in 2020. More such mechanisms are in the works.
In the European Union, six member states set up new investment screening regimes last year and three other countries tightened existing rules, according to The Economist. Both the Netherlands and Canada have announced plans for investment-review schemes similar to CFIUS and could have them running by the end of this year.
But if America implements an outbound investment screening system, it will join a much smaller group. According to the CSIS, only South Korea and Taiwan currently have similar mechanisms. (Taiwan's program is narrowly focused only on investments in China, a more understandable arrangement given the historical tensions between the island and the mainland.)
A January analysis of Washington's proposed screening system found it could cover 43 percent of American investment in China. "In addition to slowing new investment, a new regime could also pressure US businesses to reassess existing operations in China because of potential effects on revenue, profits, and market share," reported the Rhodium Group, an economic think tank focused on U.S.-China policy. "The proposed mechanism could accelerate the already visible shift in US-China investment relations away from 'active' channels (long-term direct investment) toward more 'passive' channels (securities investment and the sourcing of non-sensitive inputs)."
These new barriers will likely change how investments flow around the globe. In prioritizing national security above all, America might be willfully cutting off the fuel that powers the engine of global trade.
In December, as the Taiwan Semiconductor Manufacturing Company, the world's leading chipmaker, announced the installation of its equipment in a new fabrication plant in Arizona, company founder Morris Chang offered a bleak assessment of the global semiconductor trade.
"Globalization is almost dead and free trade is almost dead," he said. "A lot of people still wish they would come back. But I don't think they will be back."
'A Commercial Police State'
Sullivan's September remarks showed that the administration wants to wipe away the key distinction between economic issues and national security ones—at least for certain technologies. A more recent speech, delivered at the Brookings Institution on April 27, offered an even more chilling view of the future."
This moment demands that we forge a new consensus," Sullivan said, sweeping aside what he said was an imperfect postwar norm of free trade and economic liberalization. That new consensus would reflect what Sullivan called Biden's "core commitment—indeed, his daily direction to us—to more deeply integrate domestic policy and foreign policy."
That vision goes well beyond export controls and outbound investment screening systems. It includes the giant semiconductor subsidies in the CHIPS Act, and the more aggressive use of export controls such as the Commerce Department's entity list. Above all, it means a greater conflation of private economic issues with the geopolitical scramble for power.
"A modern American industrial strategy," Sullivan explained, "identifies specific sectors that are foundational to economic growth, strategic from a national security perspective, and where private industry on its own isn't poised to make the investments needed to secure our national ambitions."
In short: If it produces profit, if it matters to the military, or if it has any vague connection to the still-more-vague notion of America's "national ambitions," the government gets to decide whether it can be bought, sold, or supported with private investments.
If there's a silver lining to all this, it's the same one that hides inside any proposal to expand government: It's tough to get the specifics right.
"In order for such restrictions to succeed, the United States would have to become a commercial police state on an unprecedented scale," wrote Adam Posen, president of the Peterson Institute for International Economics (PIIE), in a March article for Foreign Policy. "The United States would also have to monitor and prevent its own headquartered companies from moving activities abroad. Washington has done this, on a limited scale, on specific technology transfers. But scale matters, and current proposals would be an order of magnitude more ambitious and thus infeasible."
After Yellen's and Sullivan's April speeches failed to offer much in the way of specifics about how the outbound investment screening tool would operate, some observers suggested there may not be a clear path forward.
"The fact that they left the description of these tools vague seemed to reflect that the administration is having a challenging time balancing the planned restrictions against the concerns of a private sector that continues to have a stake in Chinese investments," wrote Martin Chorzempa, a senior fellow with the PIIE. "The vision advertised is bold, but its ultimate success is in question," wrote Mireya Solís, director of the Center for East Asia Policy Studies at Brookings. She suggested that Biden's decision to rely heavily on executive orders to impose this new "international economic strategy" would leave Congress as well as the private sector feeling marginalized.
Congress might get involved, but it's unlikely to stand in the way. In early May, Senate Majority Leader Chuck Schumer (D–N.Y.) reportedly tasked Democratic committee chairs to begin working on what he called a "China competition bill." There's likely to be plenty of interest on the other side of the aisle too. "If one of the bigger things we did over the last four years was beef up CFIUS process to more closely scrutinize Chinese investment in the United States, I think the next phase of that is going to be looking at capital flows from America to China," Rep. Mike Gallagher (R–Wisc.) told Semafor in January.
Any congressional effort is likely to build upon a 2021 proposal by Sens. Bob Casey (D–Penn.) and John Cornyn (R–Texas), who authored a bill to create an outbound investment screening program similar to what the Treasury Department is now contemplating.
A bipartisan group in the House introduced a new version of that legislation in early May. The bill calls for a new committee that looks a lot like the existing CFIUS—drawing together leaders of the Departments of Commerce, Treasury, Defense, Homeland Security, and Labor, along with intelligence officials—to block foreign investments. The lawmakers frame the effort as a way to prevent outsourcing, and their bill quickly scored an endorsement from Liz Shuler, president of the AFL-CIO.
This rush to create yet another executive-branch black box with poorly defined powers over how American companies and individuals spend their money abroad deserves more scrutiny than it is likely to receive. By restricting trade, we are hurting not just others but ourselves.
At the group's annual China Business Conference on May 10, U.S. Chamber of Commerce President Suzanne Clark spoke directly to the potential dangers of this rush to stigmatize American investment in China as a national security risk. "We must safeguard our national security and our values," she said, stressing that being asked to pick between them is a "false binary."
"Transactions that don't pose a threat to national security strengthen the U.S. economy, present opportunities for small businesses, and improve the standard of living for millions of Americans," Clark said. "If we treat every economic transaction as a risk, we lose focus on areas that truly pose a threat."
It's been more than five years since Trump's infamous declaration that "trade wars are good and easy to win." It turns out that trade wars are easy—to start and to escalate. But not to win. Biden has maintained Trump's tariffs and now seems poised to expand the trade war, a strategy that carries real risks. The current approach requires a complex mix of interventions in the form of subsidies for domestic technology manufacturing and policing of global supply chains. It is built on the assumption that government officials will make the right calls about which economic issues count as a clear "national security" concerns, unmuddied by the inevitable campaigns to influence their decisions. It also assumes that future presidents, possibly including Trump, will staff those positions with competent and clear-eyed officials too. Do you really want to take those odds?
The people pushing this "new consensus" also make a dangerous assumption about geopolitics. In trying to wall off investment in China, the White House is giving countries an incentive to build more barriers to trade and investment around the world—and not all of the new rules will be oriented as America desires. A zero-sum global economy will leave many people worse off, and it will raise the stakes for conflict over the scarce resources being jealously guarded behind national borders. Trade has long been an engine for global economic growth and a way to help keep the peace between nations. In trying to turn it into an exercise in military might, Biden and his enablers in Congress risk turning what should be an engine of peace into an engine of war.