The Great Walling Off of China: White House Directs CFIUS Scrutiny and Potential Sanctions for Investments Between Countries

On February 21, 2025, the White House announced new foreign investment policies focused on restricting investments into and from the People’s Republic of China (PRC or China). The “America First Investment Policy” memorandum lays out, among other things, plans to reduce Chinese investments in U.S. “strategic sectors” and deter — possibly via new sanctions — U.S. investments in China’s “military-industrial sector.”

Foreign Investments in the U.S. — An Eye on Chinese Investors

In the memorandum, President Trump ordered a slew of agencies, including the U.S. Department of the Treasury (Treasury Department), to “use all necessary legal instruments” to restrict China-affiliated persons from investing in several U.S. industries designated as strategic sectors, including:

• Technology
• Critical infrastructure
• Healthcare
• Agriculture
• Energy
• Raw materials

The memorandum specifically identifies the Committee on Foreign Investment in the United States (CFIUS) — an inter-agency body led by the Treasury Department that reviews for national security concerns certain foreign investments in the U.S. — as a means to restrict such investments. The Trump administration will seek to “strengthen CFIUS authority” to make these restrictions — for example, by expanding the CFIUS’ jurisdiction to review “greenfield” investments — that is, new facilities installed by foreign companies in the United States. CFIUS is currently only authorized to review greenfield investments if they involve facilities constructed near specific military installations, airports, and maritime ports; congressional approval would be needed to expand CFIUS’ jurisdiction. The administration also seeks to restrict foreign access to “talent and operations” in sensitive technologies like artificial intelligence and to expand the scope of “emerging and foundational technologies addressable by CFIUS.”

The memorandum also calls on CFIUS to discontinue the use of “complex[] and open-ended mitigation agreements.” Mitigation agreements are used in cases where a transaction or investment raises national security concerns; in those cases, CFIUS imposes additional conditions and compliance measures while still allowing the transaction to proceed. The Trump administration now directs CFIUS to not use mitigation agreements unless they are limited to “concrete actions that companies can complete within a specific time.” As a result, transactions raising national security concerns — likely those with Chinese investors — may more frequently be terminated rather than mitigated. CFIUS is directed to reallocate resources from mitigation efforts to prioritizing investments from other, non-China “key partner countries” and to “fast track” reviews for any investment over $1 billion from specific allies involving U.S. advanced technology.

U.S. Investments in China — Sanctions and Outbound Restrictions?

On the flip side, the White House seeks to deter U.S. persons from investing in Chinese enterprises, or at least in enterprises deemed supportive of China’s military complex. The memorandum expressly considers “the imposition of sanctions,” under the International Emergency Economic Powers Act, on U.S. investments in particular Chinese sectors, including:

• Semiconductors
• Artificial intelligence
• Quantum
• Biotechnology
• Hypersonic
• Aerospace
• Advanced manufacturing
• Directed energy

This list of industries — which the memorandum clarifies is not exhaustive — is broader than the current Outbound Rules issued by the Treasury Department, which consider only semiconductors and microelectronics, quantum information technologies, and artificial intelligence subject to the rules’ prohibition and notification requirement. The Trump administration also indicated a possible expansion of the list to cover additional industries and sectors.

The Road Ahead

The memorandum is framed to address foreign investment policies in general, but the Trump administration’s focus on China is evident. “Economic security is national security,” the White House says; “[t]he 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.” This national security outlook should put additional sectors — whether in the U.S. or in China — on notice for additional investment restrictions going forward.

In some respects, the new policies expand on existing Biden administration policies of using CFIUS to scrutinize foreign investors. For example, in November 2024, the Treasury Department under the last administration finalized a rule enhancing CFIUS’ monitoring and enforcement powers, allowing the committee to request additional information from potential investors and increasing the maximum potential penalty CFIUS could impose from $250,000 to $5 million, a 20-fold increase.

With CFIUS touting additional enforcement powers and a mandate to more closely scrutinize certain investments, it will be prudent for individuals and businesses transacting with foreign parties, particularly in the critical technology, critical infrastructure, and sensitive personal data sectors, to keep abreast of their disclosure and response obligations. Companies operating in the identified sectors — based in either country — should be aware of the new measures that are likely coming down the pike and should anticipate extra scrutiny or restrictions, possibly even sanctions, that may limit the flow of investments between the U.S. and China.

We will continue to monitor developments in this area. For questions on this or any other subject, please reach out to the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or CFIUS practice groups.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.