FDI Like You're FDR: CFIUS Review Under the Biden Administration's Rooseveltian Conception of National Security

• Author: Will Moreland
• Position: J.D., Georgetown University Law Center, 2022; M.S.F.S., Georgetown University, 2015; B.A. Yale University, 2013
• Pages: 627-658

FDI Like You’re FDR: CFIUS Review Under the

Biden Administration’s Rooseveltian Conception of

National Security

Will Moreland*

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627

I. THE PATH TO THE PRESENT: CFIUS PRE-FIRRMA . . . . . . . . . . . . 631

A. The Exon-Florio Amendment: The False Divide . . . . . . . . . . 632

B. FINSA: More Continuity Than Change . . . . . . . . . . . . . . . . . 634

II. FINALLY, FIRRMA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637

A. Not Back to the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638

B. The Road to Economic Competitiveness Winds Through

Advanced Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641

III. RESURRECTING ROOSEVELT: ECONOMIC SECURITY AS DEFENSE OF

DEMOCRACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644

A. “I am thinking of our democracy.”.................... 645

B. Biden’s National Security: Build Back Better (and Broader) . 646

IV. FIRRMA FIT?........................................ 649

A. FIRRMA-ly No . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650

B. Intention vs. Execution: FIRRMA’s Flexibility in Practice . . 651

V. THE RIGHT TOOL FOR THE RIGHT PROBLEM . . . . . . . . . . . . . . . . . . . . . . . . 654

A. Too Much Cost for Too Little Threat Reduction . . . . . . . . . . . 654

B. Sometimes the Indirect Route is Best . . . . . . . . . . . . . . . . . . . 656

CONCLUSION.............................................. 657

INTRODUCTION

The largest perceived invasion of the late 2010s was not of a country, but of a dis-

cipline. National security invaded economics. Following three decades of efforts to

divide the two spaces, two consecutive American presidents made headlines declar-

ing “[e]conomic security is national security.”

1

Driving this development has been

* J.D., Georgetown University Law Center, 2022; M.S.F.S., Georgetown University, 2015; B.A.

Yale University, 2013. Special thanks to Professor Mary McCord for supervising and guiding the

original research and drafting of this Note. Additionally, many thanks to Tarun Chhabra, Bruce Jones,

Robert Kagan, and Thomas Wright; without their work and mentorship at the Brookings Institution, the

early seeds for this Note would not have been planted. All mistakes or errors are mine alone. Finally, the

greatest thanks and dedication are reserved for Kristen Belle-Isle, who tolerated far too many ramblings

about CFIUS, economic security, and Franklin Roosevelt. © 2022, Will Moreland.

1. PRESIDENT DONALD J. TRUMP, NATIONAL SECURITY STRATEGY OF THE UNITED STATES OF

AMERICA 17 (2017) [Hereinafter TRUMP NSS]; PRESIDENT JOSEPH R. BIDEN, JR., INTERIM NATIONAL

SECURITY STRATEGIC GUIDANCE 15 (2021) (stating that “our policies must reflect a basic truth: in

today’s world, economic security is national security”) [Hereinafter BIDEN INSSG]. While the Biden

administration’s INSSG was published in 2021, its thinking was firmly grounded in an intellectual shift

627

China’s emergence as a true great power competitor to the United States.

2

See Uri Friedman, The New Concept Everyone in Washington is Talking About, THE ATLANTIC

(Aug. 6, 2019), https://perma.cc/3BHW-5GB4. The Biden administration has emphasized a rhetorical

shift toward “strategic competition.” Daniel Lippman, Lara Seligman, Alexander Ward & Quint Forgey,

Biden’s Era of “Strategic Competition”, POLITICO: NAT’L SEC. DAILY (Oct. 10, 2021, 4:08 PM), https://

perma.cc/3AUR-LQ4Z.

While

the United States has confronted multi-domain competitors previously,

3

3. While the United States’ most recent multi-domain competition was the Cold War, that experience

was not the only one. See Markus Brunnermeier, Rush Doshi & Harold James, Beijing’s Bismarckian

Ghosts: How Great Powers Compete Economically, WASH. Q., Fall 2018, at 161. Recently, to speak of

the current U.S.-China dynamic and the Cold War is to be charged with advocating for a “new cold war.”

E.g., Alexandra Hutzler, Tulsi Gabbard Implores Joe Biden to “Ratchet Down New Cold War with

Russia and China,” NEWSWEEK (Apr. 15, 2021, 12:11 PM), https://perma.cc/5RJF-F3B9. This author

has maintained the United States cannot simply port over yesterday’s Cold War strategy to today’s

challenges. See Will Moreland, “Strategic Competition with China” – Necessary But Not Sufficient,

BROOKINGS ORDER FROM CHAOS BLOG (Oct. 19, 2018), https://perma.cc/ZS34-FW33. However,

Washington should examine its history to identify mistakes to avoid repeating as much as policies to

adopt.

the

China challenge is distinct. Not only is China undertaking military moderniza-

tion efforts

4

and expanding its techno-authoritarian means of societal control,

5

it

also stands as the first modern competitor on track to equal, and likely surpass,

the United States economically.

6

Given the democratic world’s recent internal

discord,

7

China presents open societies with a comprehensive clash of systems,

rather than a narrower rivalry.

8

The scale and nature of China’s rise have reinvigorated debates over American

economic policy, including the role of national security equities in that field.

9

This policy conversation has been bipartisan. Among Democrats, see Jake Sullivan & Jennifer

Harris, America Needs a New Economic Philosophy, Foreign Policy Experts Can Help, FOREIGN POL’Y

(Feb. 7, 2020), https://perma.cc/XK8Y-PT9A; Jared Bernstein, The Time for America to Embrace

Industrial Policy Has Arrived, FOREIGN POL’Y (Jul. 22, 2020), https://perma.cc/2DKJ-J7TG. Among

Republicans, see SENATOR TOM COTTON, BEAT CHINA: TARGETED DECOUPLING AND THE ECONOMIC

LONG WAR (2021), https://perma.cc/8WTR-S5L7; S. COMM. ON SMALL BUS. AND ENTREPRENEURSHIP,

MADE IN CHINA 2025 AND THE FUTURE OF AMERICAN INDUSTRY (2019) (report published under the

chairmanship of Senator Marco Rubio), https://perma.cc/PX8G-TSJ8.

For

several decades, American policy makers had cultivated a belief that national

of the late 2010s. See infra Section III.B. Regarding the multi-decade division between security and

economics, see ROBERT BLACKWILL & JENNIFER HARRIS, WAR BY OTHER MEANS 3-7 (2016) (viewing

the global economy through a security lens began “to wane” around the Vietnam War).

2.

4. See, e.g., OFFICE OF THE SECRETARY OF DEFENSE, MILITARY AND SECURITY DEVELOPMENTS

INVOLVING THE PEOPLE’S REPUBLIC OF CHINA 2017 ii (Dep’t of Def. 2017).

5. See ALINA POLYAKOVA & CHRIS MESEROLE, EXPORTING DIGITAL AUTHORITARIANISM: THE

RUSSIAN AND CHINESE MODELS 1 (Brookings Inst. 2019) (outlining “digital authoritarianism”).

6. ANDREW F. KREPINEVICH, PRESERVING THE BALANCE: A U.S. EURASIA DEFENSE STRATEGY 38-39

(Ctr. for Strategic and Budgetary Assessment 2017) (outlining, as of 2014, China reflected 59.4 percent

of U.S. GDP, whereas the Soviet Union and Nazi Germany only possessed 40.4 percent and 26.2 percent

of U.S. GDP, respectively, at their height).

7. See generally EDWARD LUCE, THE RETREAT OF WESTERN LIBERALISM (2017).

8. A clash of systems does not mean China seeks to export its model to the United States or the

world. There is good evidence it is not. See RYAN HASS, STRONGER: ADAPTING AMERICA’S CHINA

STRATEGY IN AN AGE OF COMPETITIVE INTERDEPENDENCE 50-59 (2021). Nevertheless, in an

interconnected world, “making the world safe for authoritarianism,” even in self-defense, has serious

implications for the world’s democracies.

9.

628 JOURNAL OF NATIONAL SECURITY LAW & POLICY [Vol. 12:627

security policy and economic affairs should remain separated.

10

10. See BLACKWILL & HARRIS, supra note 1, at 166-78 (describing the decline of geoeconomics and

the “‘separation of economics from U.S. foreign policy and security policy’” (quoting Robert Zoellick,

The Currency of Power, FOREIGN POL’Y (Oct. 8, 2012), https://perma.cc/7XD3-642A)).

That narrative

particularly shaped the Committee on Foreign Investment in the United States

(CFIUS). In theory, CFIUS has narrowly cabined its review of foreign investment

on national security grounds, supporting a wider open investment climate.

11

Yet, coming on the heels of the Trump administration’s announcement that “eco-

nomic security is national security,” the latest update to CFIUS – the Foreign

Investment Risk Review and Modernization Act of 2018 (FIRRMA)

12

– raised

the prospect of a wider remit for national security concerns in economic policy

decisions. A direct response to China’s growing global assertiveness, FIRRMA

grappled with concerns surrounding Chinese foreign direct investment (FDI) in

U.S. businesses involved in the research and development of advanced technolo-

gies.

13

Then, when the new Biden administration likewise emphasized “economic

security is national security,” what might have appeared a Trump-era blip seemed

to reflect a larger sea change.

Closer examination shows a more complex picture. Since its founding, CFIUS

consistently has wrestled with the boundaries of “national security,” up to and

including FIRRMA. Drawing a bright line has never been simple. Furthermore,

despite common interpretations that CFIUS sought to remove national security

considerations from the larger economy,

14

it is more accurate to describe certain

national security assumptions as baked in sotto voce. Minimizing intervention in

the economy on national security grounds would avoid hindering growth, which

would, in turn, support U.S. military power.

15

In the closing days of the Cold War

and the heyday of the unipolar moment, those assumptions were unchallenged.

Today, however, a paradigm shift is unfolding. China’s rise has not only chal-

lenged assumptions about the U.S.-China relationship, but also suppositions sur-

rounding the international economy – ones that supported the economic-national

security divide.

16

Both the Trump and Biden administrations have recognized this

development. In particular, President Biden’s Foreign Policy for a Middle Class

11. EDWARD M. GRAHAM & DAVID M. MARCHICK, U.S. NATIONAL SECURITY AND FOREIGN DIRECT

INVESTMENT 20 (Inst. for Int’l Econ. 2006).

12. Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, § 1702(c),

132 Stat. 2174 (2018) [Hereinafter FIRRMA].

13. CFIUS Reform: Examining the Essential Elements: Hearing Before S. Comm. on Banking,

Housing, and Urban Aff., 115th Cong. (2018) (testimony of FIRRMA sponsor John Cornyn, U.S.

Senator (R-TX)) [Hereinafter Cornyn CFIUS Testimony]. Senator Cornyn emphasized China as the

“context for this legislation”; “the kind of threat [posed] is unlike anything the [United States] has ever

before faced – a powerful economy with coercive, state-driven industrial policies that distort and

undermine the free market, married up with an aggressive military modernization and the intent to

dominate its own region and potentially beyond.” Id. (italics original).

14. See, e.g., THEODORE MORAN, CFIUS & NATIONAL SECURITY: CHALLENGES FOR THE UNITED

STATES, OPPORTUNITIES FOR THE EUROPEAN UNION (Peterson Inst. for Int’l Econ. 2017).

15. See infra Section I.

16. See, e.g., Mark Wu, The ‘China, Inc.’ Challenge to Global Trade Governance, 57 HARV. INT’L L.

J. 1001 (2016).

2022] FDI LIKE YOU’RE FDR 629