President Donald Trump announced his plan to crack down on foreign investments in American technology companies, but the president’s stance is not nearly as harsh as anticipated.
The Senate approved changes to the way the Committee on Foreign Investment in the United States operates, which will allow the committee to block joint-venture takeovers of U.S. companies by foreign companies. Under the previous rules, the CFIUS could block direct takeovers of U.S. companies, but they weren't authorized to block foreign companies from forming joint ventures to acquire U.S. targets.
In a statement, President Trump said the new rules will help protect the U.S. economy from foreign influence while maintaining a string environment for international investment.
“I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said.
Why It’s Important
Markets initially reacted positively to the new foreign investment rules, suggesting investors had expected an even harsher crackdown. Some anticipated the U.S. would block takeovers of U.S. companies by any company with at least 25 percent Chinese ownership.
With a value of roughly $14 trillion, the Chinese economy is the second largest in the world to the U.S. economy, but is growing at a much faster pace, according to the International Monetary Fund. China has aggressively been investing in U.S. companies, providing a major source of capital for the U.S. market. Rhodium Group estimates Chinese entities invested $29.7 billion in U.S. companies in 2017.
Investors will be watching to see if the softer-than-expected crackdown on foreign investment is a sign Trump is weakening his stance on his trade wars with China, Europe and other nations.
The SPDR S&P 500 ETF Trust (NYSE: SPY) traded higher by 0.2 percent on Tuesday morning. The SPDR Dow Jones Industrial Average ETF (NYSE: DIA) traded higher by 0.2 percent. The iShares FTSE/Xinhua China 25 Index (ETF) (NYSE: FXI) traded lower by 1.3 percent.
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