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On the brink of CFIUS reform…

August 3, 2018 by in CFIUS Insights

We’ve been quiet for several weeks, for the best reason that a new firm would have to pause its marketing work. Things are still very busy here at Kabealo PLLC, but we can’t stay silent forever when fundamental CFIUS reform is on the brink of passage.

The House and Senate have both passed legislation to reform the CFIUS process. Each passed the Foreign Investment Risk Review Modernization Act (FIRRMA) as a part of the National Defense Authorization Act—an act that sets annual budget and expenditures for the U.S. military. The bills passed easily in both chambers, demonstrating that bipartisanship is not entirely dead. Indeed, CFIUS reform itself has strong bipartisan support. The bill is now on President Trump’s desk for signature, which should happen within a matter of days.

This firm is undertaking a line-by-line analysis of the changes to the current CFIUS legislation, and we will be publishing more specifically on that topic in the coming weeks. Generally, however, the reforms will broaden the scope of CFIUS jurisdiction. Currently, CFIUS only has jurisdiction over acquisitions of “control” of a U.S. business by a foreign person. The reforms will sweep certain non-controlling investments and commercial real estate transactions under the purview of CFIUS, and the reforms will broaden the scope of the types of U.S. businesses that CFIUS will seek to review (such as those with access to personal data, and those in possession “foundational technology”). Certain transactions—those involving government control of the acquirer—will prompt a mandatory filing, which is a significant departure from the purely voluntary nature of the current process. The filing process itself will be revised in several helpful ways, and the timeframe for reviews will be slightly extended from 30 days to 45 days.

On the international trade war fronts, the President has decided to concentrate his fire on China. In July, President Trump and Jean-Claude Junker (president of the EU) reached a tentative deal to cease tariffs on one another’s goods. Separately, the administration is seeking to conclude NAFTA renegotiations in the near term. That leaves China as the main active front on the President’s trade agenda, and he is ratcheting up the pressure on China, with plans to place 25% tariffs on an additional $200 billion of Chinese goods (increased from a previous plan of 10% tariffs). The President had discussed placing a tariff on all goods imported from China, but has withheld from doing so as yet. In response to the threat of the $200 billion tariffs, China has vowed tariffs on an additional $60 billion of U.S. goods.

As we have discussed before, President Xi of China believes he has the stronger hand in a trade war because he is not subject to electoral pressure, while President Trump faces a significant midterm challenge in November. Will the President’s rural base, which is feeling the pain of tariffs, support him in the polls? The observation at this firm is that few politicians are as skilled at aiming his base at enemies as President Trump is. And indeed, anecdotal reports indicate that Trump’s base is remaining loyal to him, ready to serve the cause of a trade war against China on the belief that it is for the greater good of the U.S.

As you’ve seen, we are unlikely to continue posting weekly updates, given the current workload here, but we will continue to post updates and analyses as circumstances warrant. Stick with us, and as always, reach out with any questions:

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