President Backs Off on Limits to China

WASHINGTON — The Trump administration has backed off a plan to impose aggressive new restrictions on Chinese investment in the United States, opting instead to support a congressional effort that would expand the types of foreign deals that are subject to review.

President Donald Trump said Wednesday that he supported a bipartisan push in Congress to broaden the authority of a government body that reviews foreign investments for security threats. The legislation would give the United States power to squelch a wider variety of investments from China, including minority stakes in U.S. firms, joint ventures, and real estate transactions near military bases or other national security facilities.

It would also allow the United States to consider risks beyond national security when rejecting transactions — for instance, whether a deal could undercut America’s dominance in a particular field, like wireless technology or artificial intelligence.

Trump said the expansion of the Committee on Foreign Investment in the United States, or CFIUS, would achieve his goal of combating China’s “predatory investment practices” of buying stakes in American companies to acquire valuable technology and trade secrets.

The decision will forestall more draconian curbs on Chinese investment that the White House had been considering, like limiting investment in technology and manufacturing industries by declaring an economic emergency. That could help defuse tensions between the world’s two largest economies, at least somewhat.

But it is unlikely to avert a rapidly approaching trade clash that threatens to derail global stock markets and multinational supply chains. China is still far from offering to make the type of substantial changes to its economy that the Trump administration has pushed for, and no official talks appear to be scheduled in the next week.

The Trump administration is scheduled to put levies on $34 billion worth of Chinese products on July 6, with the president threatening to impose tariffs on as much as $450 billion of Chinese goods as punishment for Chinese trade practices. Beijing has countered with its own threat of tariffs on U.S. products.

“Our objective is not to single out China or treat them differently, but that we have the necessary tools to protect U.S. investments,” Steven Mnuchin, the Treasury secretary, said Wednesday. “I’m not going to make specific comments on where we are in dialogue, but if China wants to come to the table with free and fair trade and treating American companies fairly and reducing the trade deficit, we’re always willing to listen.” Additional curbs could still be coming. Administration officials said Wednesday that Trump would direct the heads of the Commerce Department and other federal agencies to review the nation’s export controls and recommend any needed changes. That could have a more significant effect on U.S. companies than restrictions on Chinese investment, since it could limit their ability to sell products to China. The targeted industries that the White House wants to prevent China from dominating include robotics, artificial intelligence and new-energy vehicles.

Eswar Prasad, a professor of international trade at Cornell University, said the president’s announcement suggested “a brief lull in the economic hostilities against China.”

“For now, at least, the momentum within the administration has swung back in favor of Mnuchin and others who favor a less confrontational approach to the economic relationship with China,” Prasad said. “However, with the imposition of tariffs against China just a few days away, this apparent respite in economic hostilities could prove to be all too fleeting.”

The announcement appeared to be a narrow and unlikely victory for more moderate advisers in the White House. While expanding CFIUS would most likely curb Chinese investment, the White House had drafted an executive order that would have put more stringent investment restrictions into effect, according to people familiar with the plans.

That garnered the support of more hard-line trade advisers — among them Peter Navarro; Robert E. Lighthizer, the U.S. trade representative; and Commerce Secretary Wilbur Ross — as well as the national security adviser, John R. Bolton.

But Mnuchin convinced Trump that the president could be blamed for triggering a drop in the stock market and for creating additional layers of bureaucracy necessary to review investments. Mnuchin and top Republican lawmakers made the case that the legislation winding its way through Congress provided a viable bipartisan alternative.

Justice Department and State Department officials had also warned that investment restrictions emanating from the White House could trigger a wave of lawsuits.

The potential investment restrictions were part of the White House’s effort to punish China for what it says are years of unfair trade practices, including cyberespionage and a pattern of pressuring American technology companies to hand over valuable trade secrets. Among the actions that the United States has targeted are what it describes as the “theft” of corporate secrets and China’s strategy to dominate cutting-edge industries, known as Made in China 2025. Data released this week from Public Citizen, a liberal advocacy group and think tank, showed that 56 percent of Chinese investments in the United States last year were in industries that Beijing defines as “strategic,” such as aviation, biotechnology and new-energy vehicles — up from 25 percent in 2016.

In a meeting last week with China’s president, Xi Jinping, U.S. corporate executives urged him to send one of his most trusted advisers, Wang Qishan, to the United States for talks. But with the U.S. and China so far from a compromise, such a visit appears unlikely in the near term, people familiar with the deliberations said.

On Wednesday, Larry Kudlow, the White House’s chief economic adviser, said that Trump and Xi “work well together,” but that the president was unsatisfied with the Chinese response on trade talks.

“The ball is in their court,” Kudlow said.

Administration officials who outlined the decision in an early-morning briefing said that Trump had been pleased with the evolution of the legislation to expand CFIUS and that he viewed it as an “extremely powerful tool” to safeguard national security. The overhaul would allow CFIUS to review investments from a list of “countries of special concern” but stops short of specifically naming China as the target.

The Senate and House have passed different versions of the legislation, which must be reconciled and sent back for a final vote. While final approval appears likely in the coming weeks, it is not guaranteed. Trump said he would be prepared to “deploy new tools, developed under existing authorities,” if lawmakers did not act to “protect the crown jewels of American technology and intellectual property from transfers and acquisitions that threaten our national security — and future economic prosperity.”

The decision could help repair ties with Republican lawmakers, who have been at odds with Trump over his approach to trade, including his tariffs on the European Union, Canada and Mexico and his decision to rescue the Chinese telecommunications company ZTE.

Trump has also threatened to put 20 percent tariffs on autos imported into the United States. A handful of Republican senators have introduced legislation to limit the president’s ability to impose such tariffs, but they have faced opposition from Republican leadership.

Lawmakers have worked for months on the CFIUS legislation, seeing it, rather than punitive new restrictions, as the best path to curtail risky investments from China. Sen. John Cornyn, R-Texas, who has sponsored the bill, said in a statement that he appreciated the president’s support for the legislation, which “takes a carefully tailored approach to updating the review process without limiting our ability to meaningfully engage in trade with partners around the world.”

Mnuchin insisted on Wednesday that the Trump administration was not pursuing a protectionist approach and was actually trying to prod other countries, including China, to lower their trade barriers.