U.S Government To Block Chinese Investments In Tech Companies

The U.S. is ratcheting up its trade fight with China, gearing up to prevent some Chinese companies from investing in U.S. technology firms.

According to a report in the Wall Street Journal, citing people familiar with the plans, the Treasury Department is putting together rules that would prevent Chinese firms that have a 25% or more stake from a buying a U.S. company that is viewed by the Federal government as having “industrially significant technology.” The investment stake limit could be lowered before the official announcement which is expected at the end of the week. At the same time, the government will move to block more technology exports to China.

The plans are aimed at stopping China from moving ahead with its “Made in China 2025” initiative in which it wants to be the leader in a range of technology areas such as information technology, aerospace, biotech and electric vehicles among others. The White House and supporters of tough trade talk argue that China steals intellectual property belonging to technology companies to advance its own interests. “The President has made clear his desire to protect American technology,” said Commerce Secretary Wilbur Ross, in a statement to The Wall Street Journal. “All possibilities that would better protect American technology, including potential changes to export controls, are under review.” (See more: 92% Drop in China Investments Amid Trade Strains.)

Trump Won’t Go After Existing Deals

Under the plan, which hasn’t been finalized as of yet, the U.S. would prevent the purchase of any U.S. tech companies by a Chinese firm if it already owned 25% of the company. A deal could be blocked even if the investment is lower than that if the U.S. government determines Chinese investors could access technology via sitting on the board, inking licensing agreements and through other efforts. The White House will only look at new deals and isn’t expected to go after existing ones, although they could be prevented from making additional investments in U.S. technology companies.

Trade Groups Express Concern

According to the Wall Street Journal, the White House is planning on evoking the International Emergency Economic Powers Act of 1977 which gives the president board authority to engage in acts to protect the citizens of the U.S. It was used after the Sept. 11 2001 terrorist attacks. President Trump's use of it for trade is raising concerns with some trade associations which are looking to challenge the use of the act as part of the White House’s trade fights. Derek Scissor, an American Enterprise Institute China expert said the Trump Administration is abusing its power by evoking the IEEP Act. “The administration is saying if we declare everything a national security issue we can do whatever we want. It’s a misuse of executive power,” he told the Wall Street Journal. (See more: Apple Faces Big Risk If China Trade War Ensues.) Finance and technology industry groups are most concerned with the export control part of the impending measure, arguing it could hurt their businesses. While they don’t like the limits on Chinese investments in U.S. tech companies they aren’t as concerned since China has reduced those types of investments dramatically.

The latest moves on the part of the White House comes as the first tariffs on $34 billion of Chinese imports go into effect on July 6. Last week Trump ratcheted up the trade tensions with China threatening to place levies on as much as $450 billion of Chinese products. China has responded by threatening the match the tariffs dollar-to-dollar on the day they are implemented in the U.S.