Live

Watch CBSN Live

5 things to know about Trump, China, Congress and tech

Trump threatens China with more tariffs
Trump threatens China with more tariffs 00:33

President Donald Trump on Wednesday shifted from a previously announced plan to impose new limits on foreign investment in American technology companies and U.S. high-tech exports that were aimed mostly at China.

Instead, the administration is backing Congressional legislation that expands powers of an existing government panel that oversees foreign transactions. The bills, one in the House and one in the Senate, are working their way quickly through Congress. A revamped version passed the House in a 400-2 vote this week.

U.S. stock markets, which open sharply higher on Wednesday, erased their early gains after White House economic adviser Larry Kudlow told Fox News that supporting this legislation didn't mean the Trump administration was softening its stance on China. Still, he called the bills "very comprehensive and very effective at protecting our technological family jewels."

Here are five things to know about the situation.

How China and other nations invest in U.S. technology is key

Government officials and U.S. firms have long worried about theft by China of new technologies like software controls, robotics and even airplanes, including by joint ventures or outright purchases of American companies.

Some of those concerns involve national security for basic everyday systems, like the electric grid, transportation systems and other infrastructure. The new versions of the legislation give a government panel, commonly called CFIUS, power to review critical infrastructure like electric grids.

Last year Mr. Trump directed his administration to offer recommendations that, in addition to tariffs, included ways to limit foreign investment in the U.S.

At the same time, Congress pursued strengthening the powers of CFIUS. That legislation is called the Foreign Investment Risk Review Modernization Act, or FIRRMA, in both the House and Senate.

Mr. Trump has repeatedly said China steals intellectual property from American companies trying to do business there. That includes everything from aviation equipment to software. Some U.S. companies have long complained that China forces them to transfer their technology to Chinese-owned companies as a condition of doing business there.

On June 27, Mr. Trump said the Secretary of Commerce will examine issues tied to "the transfer and export of critical technologies" and "make any modifications that may be needed to strengthen them to defend our national security and technological leadership."

Treasury Secretary Steven Mnuchin on June 27 told CNBC the strengthened FIRRMA legislation lets the U.S. prohibit American companies pursuing joint ventures in China from transferring technology if that tech is deemed "critical" to national security.

Millions of jobs depend on the complex U.S.-China relationship

At their peak in 2016, Chinese companies spent $62.8 billion on buying U.S. firms, a roughly 100-fold rise from 2000, according to Dealogic.

Some 2.6 million U.S. jobs rely on the U.S.-China trade relationship, according to recent figures from Oxford Economics, with at least 43,000 tied to direct Chinese investment.

Experts fear tightening the spigot on Chinese investment in U.S. companies would deprive American firms of an ample source of capital -- funding needed to generate growth and jobs.

China is also the biggest holder of U.S. government debt at $1.18 trillion as of April, according to the U.S. Treasury Department. Japan is next at $1.03 trillion, followed by a very distant Ireland at about $300 billion.

"We expect that rising interest rates and the U.S.'s position as a global safe haven will keep U.S. assets attractive and support persistent foreign capital inflows," Gregory Daco, chief U.S. economist at Oxford Economics, wrote in a note.

Yet President Trump's trade policies pose a "considerable risk," Daco wrote. That's because "increased protectionism" may upset "key sources of foreign capital" just as U.S. deficits grow and the U.S. economy needs more external sources of financing, he said.

Trump's tariffs are starting to worry financial markets

The president's aggressive tariff strategy, including against long-time U.S. allies, has created a tough atmosphere in which to pursue tighter intellectual property controls without dangerously escalating these disputes.

"As markets reacted negatively to fears of escalations in Trump's trade war earlier in the week, the administration scrambled to send a message, to reassure investors, and to stop the sell-off," wrote Height Capital's Clayton Allen before Kudlow's remarks on Wednesday, noting that conflicting signals from top Trump advisers Robert Lighthizer, Peter Navarro and Mnuchin didn't help.

"With EU retaliatory tariffs already pushing companies like Harley Davidson toward plant closures, more aggressive actions toward already antagonized nations risk increasing negative impacts to U.S. firms," Height Capital's Allen wrote. "This will likely restrict the application of any finalized investment restriction mainly to China, which serves both to limit collateral damage and to address the primary concern of the defense and intelligence communities."

What's CFIUS again? How will it monitor things? 

CFIUS is the panel that currently reviews cross-border mergers and their impact on U.S. national security. It typically examines transactions when they're brought before the panel or the panel is alerted by entities like tech firms or members of Congress.

If Congress passes one of the new bills up for consideration, it would expand CFIUS's powers to also cover minority stakes taken by China in U.S. companies, among other changes.

U.S. tech companies seem cautiously optimistic

"We are encouraged that the administration is focused on working with Congress to continue advancing CFIUS reform," said Dean Garfield, CEO of the Information Technology Industry Council, an industry group representing tech companies, in an e-mailed statement. "Importantly, both the House and the Senate have advanced legislation to enhance our national security without unnecessarily impeding economic growth and job creation."

The industry group said it remains "remain optimistic that Congress will complete its work soon. Once it does, we urge the administration to quickly implement FIRRMA."

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.