Very far, under existing U.S. law. The authority already available to the President under the International Emergency Economic Powers Act (IEEPA) is vast, and could be applied to Chinese investments with the (relatively) simple declaration of a national emergency related to such investments. Reports have already been swirling about a plan by the Trump Administration to use IEEPA to impose tighter restrictions on Chinese investment in sensitive sectors of the U.S. economy, or to implement by executive order parts of the CFIUS reform legislation under consideration by Congress. But IEEPA could be used far more broadly than that.
Although rumors of new trade and investment restrictions against China have been in circulation for several months, the President’s March 22 order in response to the “Section 301 investigation” on Chinese trade practices has brought those rumors into sharper focus. In his order, President Trump directed the Secretary of the Treasury to develop options “under any available statutory authority” that could be used “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.”
IEEPA is perhaps the most significant statutory authority available to the President to impose economic measures on another country. IEEPA gives the President broad authority “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.” Among other powers, it allows the President to: “(A) investigate, regulate, or prohibit– (i) any transactions in foreign exchange, (ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or a national thereof, (iii) the importing or exporting of currency or securities, by any person, or with respect to any property, subject to the jurisdiction of the United States; [and] (B) investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States.”
That’s a mouthful. So, what does it mean? As a practical matter, IEEPA authorizes the President to impose virtually any economic restrictions in response to a national emergency emanating from outside the United States. Unlike CFIUS, which focuses entirely on national security threats, an IEEPA national emergency does not have to be a “national security” emergency – it can also be related to a threat to the “foreign policy” or the “economy” of the United States.
At one extreme, IEEPA and its predecessor law, the Trading with the Enemy Act (TWEA), have been used to impose near-total bans on trade and investment by U.S. persons in particular countries (e.g., Iran, Cuba, North Korea), in the form of prohibitions on transactions with, imports from, exports to, or investments in, the targeted country. IEEPA can also be used to “block” the property of identified foreign persons or foreign governments, essentially freezing them out of the U.S. market and U.S. financial system.
But the President’s authority under IEEPA is not limited to those measures – the President could do more or less, or even something on a different plane altogether. For example, U.S. Presidents have used IEEPA to “block” all property of the Russian government related to the implementation of a series of bilateral agreements for the conversion of fissile material in Russian nuclear weapons into commercial nuclear power fuel – with the goal of actually helping the Russian government by protecting its property from the threat of litigation and judicial seizure ordered by U.S. courts. This is just an illustration of how broad the President’s IEEPA authority can be, and the many ways in which it can be used. IEEPA can be a sledgehammer or a scalpel, and the President has almost unfettered discretion to shape IEEPA restrictions.
So how could IEEPA be used to achieve the Administration’s trade policy goals vis-à-vis China? One possibility might be an IEEPA order imposing restrictions on some or all Chinese investments in the United States unless authorized by OFAC. OFAC normally administers IEEPA-based sanctions programs, which carry with them strong civil enforcement power (along with the ability to refer criminal cases for prosecution).
A second possibility may be that CFIUS itself ends up implementing a new IEEPA executive order targeting China, creating perhaps a two-tracked CFIUS process – providing for either the typical statutory CFIUS process that applies to acquirers worldwide, or a special “China track” that would subject investors from that country to additional restrictions on the industries in which they could invest, the types of technology they could acquire, etc. The typical CFIUS timelines and other procedures may not apply to the “China track.” Moreover, this could potentially sweep in more than just traditional M&A: it could extend to IP licensing, joint ventures, greenfield investments, and other deal structures. Again, acting under IEEPA, the President would not be bound by the statutory limitations underlying the “normal” CFIUS process. It is possible that this “China track” CFIUS process may actually resemble the revamped global CFIUS process that Congress is currently working on, under the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA). Or, it may look entirely different.
Of course, the Administration’s goal with all of this maneuvering is almost certainly not to create new permanent trade and investment restrictions – rather, they would seek to build leverage to convince China to address concerns on technology transfers, market access, or other areas of concern with respect to U.S.-China trade and investment. So, keep an eye on reports of ongoing U.S.-China trade and investment negotiations. If things stagnate, expect the Administration to try to ratchet up the pressure another few notches. Trade and investment restrictions under IEEPA may be the next arrow they pull from the quiver.
Unfortunately for industry and other stakeholders, IEEPA is a “shock and awe” statute that authorizes the President to announce measures with no warning, in order to be able to block property before it can be removed from U.S. jurisdiction or before other protective measures can be taken. So, do read the tea leaves, but be prepared for a surprise.