Trump Issues Directive To Restrict Chinese Investments In Key Sectors Including Technology Citing 'National Security' Concern - Alibaba Gr Hldgs (NYSE:BABA), Baidu (NASDAQ:BIDU)

President Donald Trump issued written orders to the Committee on Foreign Investment in the United States (CFIUS) to curb Chinese investments in strategic sectors, marking a significant escalation in the administration’s economic measures against China.

What Happened: The White House memorandum, titled the “America First Investment Policy,” affirms the U.S.’s openness to foreign investment while directing CFIUS to impose restrictions on Chinese investments in key sectors such as technology, critical infrastructure, healthcare, agriculture, energy, and raw materials. It also proposes new regulations to prevent foreign adversaries like China from exploiting capital, technology, and intellectual resources.

Referring to the People’s Republic of China (PRC), the memorandum states, “The PRC does not allow United States companies to take over their critical infrastructure, and the United States should not allow the PRC to take over United States critical infrastructure.”

The Trump administration is also considering implementing new or stricter restrictions on outbound investments to Beijing in industries such as semiconductors, artificial intelligence, quantum technology, biotechnology, and aerospace. The directive seeks to protect US investors by auditing foreign companies listed on US exchanges and preventing companies from foreign adversaries from receiving pension plan contributions.

While the directive primarily targets China, it also aims to encourage investment from allied trading partners by establishing a “fast-track” process for facilitating projects. The memo also mentions that the U.S. will fast-track environmental reviews for investments exceeding $1 billion.

In response, the Chinese Ministry of Commerce, on Saturday, stated that this directive will significantly disrupt regular economic and trade collaboration between Chinese and U.S. businesses, reported China Daily.

Why It Matters: This directive comes at a time when Chinese players like DeepSeek startup as well as listed companies like Alibaba BABA and Baidu BIDU, are ramping up their AI game in a bid to compete with the U.S.

Notably, data from the American Enterprise Institute released in January showed that Chinese investment deals in the U.S. in the first half of 2024, stood at $860 million, marking a massive decline since 2017 at $46.86 billion. Danielle Goh, senior research analyst at Rhodium Group had previously told CNBC, that the decline is a result of U.S. regulations as well as Beijing’s tightened control over capital outflows in 2017. She doesn’t expect investments to recover to peak levels in the ‘foreseeable future’.

Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times that Washington’s latest move could severely hinder technological and trade cooperation between the two nations. He also warned that excessive restrictions could lead to an overdependence on limited domestic supply sources, reinforcing monopolies, increasing costs, and reducing efficiency—ultimately weakening the security of U.S. industry and technology.

Meanwhile, the Chinese Ministry of Commerce stated that China will closely monitor the actions of the U.S. and take appropriate measures to protect its legitimate rights and interests.