WASHINGTON — For all the hubbub about tariffs and trade wars, it's Washington's increasingly aggressive investment policy toward China that could pose the biggest challenge to the auto sector in both countries.
Under a policy that involves using national security grounds to limit Chinese influence over U.S. industry and emerging technologies, the Treasury and Congress, guided by the principle of reciprocity, are expected to soon add layers of security reviews to cross-border transactions that could constrict how automakers, suppliers and other companies on both sides do business.
Heightened scrutiny of ownership changes and technology transfers in critical industries could complicate plans by auto-related companies to set up operations or sell products in the U.S., limit imports of China-made telecom equipment to support autonomous vehicles and even restrict U.S. companies from building factories in China.
"There's an increased inclination to say, 'Why should we let you invest in U.S. industry if China won't let us invest in the Chinese equivalent sector?'," said Stewart Baker, a partner at international law firm Steptoe & Johnson, who participated in investment reviews as assistant secretary of policy at the Department of Homeland Security under President George W. Bush. "Automotive is part of it. It's very hard to buy an automobile company in China, and the U.S. is likely to make it harder to buy U.S. automotive companies as well."
The changed investment climate is a product of renewed geopolitical competition with global powers after years focused on combating terrorism, resulting in a broader interpretation of the government's national security powers over commerce. The shift will mean new scrutiny of U.S. and Chinese companies, especially as China embarks on its Made in China 2025 plan, an ambitious strategy to acquire technological know-how and establish global leadership in sectors such as electric vehicles, artificial intelligence, robotics, autonomous vehicles, quantum computing and advanced manufacturing.
In addition to $150 billion in retaliatory tariffs for Chinese intellectual property theft and forced technology transfers and joint venture requirements, President Donald Trump ordered the Treasury to propose measures that curtail China's investment practices involving sensitive industries or technology.
One option under consideration is invoking the 1977 International Emergency Economic Powers Act, The New York Times reported. The law gives the president sweeping authority to deal with any "unusual and extraordinary threat" and was used to place sanctions on countries after the Sept. 11 attacks.
Baker, whose practice covers national security and technology issues, said it is plausible that Trump officials will use the powerful legal tool to stop risky inbound Chinese investments, as well as joint ventures, purchases of China-made equipment and other transactions that haven't been covered by security reviews. Courts have upheld presidential use of the act to extend export controls, even when authorizing legislation has expired, he added.