Trump Administration issues America First Investment Policy memorandum

On February 21, 2025, President Donald Trump issued the America First Investment Policy memorandum (Investment Policy Memo), outlining the US policy on investment security and directing substantial changes with regard to both the Committee on Foreign Investment in the United States (CFIUS) and the Outbound Investment Security Program (Outbound Investment Regulations).

The Investment Policy Memo confirms the longstanding view that “economic security is national security”, maintaining that the US shall preserve an open investment environment to ensure that artificial intelligence (AI) and other emerging technologies are built, created, and grown in the US.

The proposed changes to investment security review processes and expected additional prohibitions on US-person investment activity place a greater emphasis on encouraging investments by US allies and partners while continuing the trend of restricting investment activity with “foreign adversaries.” Among the key changes, a future “fast-track” CFIUS process and streamlined mitigation agreements should alleviate the regulatory burden on investors from US allies and partners. Conversely, reviews of investments by “foreign adversaries” – explicitly expanded to include the People’s Republic of China (PRC), Hong Kong, Macau, Cuba, Iran, North Korea, Russia, and Venezuela – will continue to face significant scrutiny.

The Investment Policy Memo also directs broadening restrictions on US-person outbound investment in China (inclusive of Hong Kong and Macau) in key technologies and sectors (including semiconductors, AI, quantum, biotechnology, hypersonics, aerospace, advanced manufacturing, and directed energy) that are critical for national security. In addition to material changes to the restrictions under the newly launched Outbound Investment Regulations, which we described in a previous alert, the Investment Policy Memo directs the use of other authorities, including the International Emergency Economic Powers Act (IEEPA), to establish more sanctions-like restrictions on US-person investment in China.

Process and timing

Although President Trump can impose some of the proposed changes quickly using IEEPA and other authorities, many of the changes outlined in the Investment Policy Memo will require new or updated regulations. Even working quickly, it will take several months for the Trump Administration to publish proposed rules, which will then be open for public comment. Some changes, particularly broadening the scope of CFIUS jurisdiction to include greenfield investments and farmland, will require an act of Congress. However, hostility to China is an area of bipartisan, bicameral agreement and there has already been legislation at the state level to prevent or restrict these types of investments. Despite the general delay of any congressional action, the measures outlined in the Investment Policy Memo could be added to the National Defense Authorization Act (NDAA) or a continuing resolution because of their inherent national security nexus.

Understanding the geopolitical conversation

The Investment Policy Memo is the latest contribution to the geopolitical and regulatory policy debates between the US and China. The first Trump Administration and the Biden Administration took an increasingly hostile stance towards China, and both issued Executive Orders defining China as a “country of concern” and restricting data flows and protecting national security technologies from Chinese access. The Investment Policy Memo is notable for its frankness in calling out predatory investment practices by China, such as its “national military-civil fusion strategy.” Following data localization and balkanization rules in both countries, tariffs, and China’s reported hacking campaigns into telecommunications infrastructure and ports, the Investment Policy Memo states, “The United States should not allow the PRC to take over United States’ critical infrastructure” and focuses on ports and shipping terminals, among other sectors. The Investment Policy Memo’s tone and its ever-expanding definition of national security sectors foreshadow a continued hostility towards China but also raise continued opportunities for the private sector, partners in the region, and US allies.

Implications for Chinese-backed companies

Before President Trump issued the Investment Policy Memo, there had been a significant downward trend in Chinese investments clearing the CFIUS process. Under CFIUS rules and regulations, the president has the authority to block certain “covered transactions” that the president believes will impair the national security of the US. CFIUS may impose often onerous mitigation terms on parties to a covered transaction to address perceived national security risks. Given the regulatory uncertainty inherent in the CFIUS process, some Chinese investors had previously voluntarily withdrawn, abandoned, or never even attempted transactions if it appeared that CFIUS would not approve.

The Investment Policy Memo indicates that “PRC-affiliated persons” may become entirely banned from investing in certain technology, critical infrastructure, healthcare, agriculture, energy, raw materials, or other strategic sectors. The Investment Policy Memo does not define “PRC-affiliated persons” and there is no similar concept or term in the existing CFIUS regulations. However, it is likely to include entities considered to be “foreign persons” under the CFIUS regulations because they are ultimately owned or controlled by a Chinese entity (and potentially Hong Kong entities given other recent regulations intended to curtail China-related trade activity that target China, Hong Kong and Macau).

A separate term used in the Investment Policy Memo, “foreign adversaries,” is not limited to China (as it also includes Cuba, Iran, North Korea, Russia, and the Maduro regime in Venezuela). While the Investment Policy Memo imposes restrictions on “foreign adversaries,” it does not specifically state that it will completely restrict “foreign adversaries” from the strategic sectors mentioned above, only “PRC-affiliated persons.”

It will be necessary to see how “PRC-affiliated persons” is later defined in rules and regulations implementing the Investment Policy Memo for a clearer understanding of the implications of the term and any potential restriction on Chinese parties specifically. While any ban on investment cannot legally take effect until it is implemented by law (and not via this Investment Policy Memo), the Investment Policy Memo may continue the chilling effect on certain Chinese investments that CFIUS is willing to approve in the interim.

CFIUS changes to alleviate regulatory burdens on US allies and passive investors

While the Investment Policy Memo outlines a number of potential procedural changes for CFIUS, the Investment Policy Memo simultaneously emphasizes that the US welcomes passive investment (ie, not granting the investor access to technical information or governance rights) in cutting-edge businesses from all foreign investors, including from China-backed companies and sovereign wealth funds. Ultimately, this policy will likely influence the way CFIUS views passive investors, including those from China, in a way that is more conducive to those investments.

CFIUS proposals to alleviate regulatory burdens for allies include:

• A future “fast-track” CFIUS process for allies and partners of the US: The Investment Policy Memo directs CFIUS to create a new “fast-track” process for allies and partners of the US. The Investment Policy Memo does not identify which allies and partners will be included, but states that foreign investors who “avoid” partnering with US foreign adversaries could take advantage of the new “fast-track” process. This may be implemented via an expansion to the current list of “excepted foreign states” (which currently includes the UK, Australia, New Zealand, and Canada), or a new abbreviated CFIUS filing process for investors from certain countries. The option may not be made available to US allies that maintain more extensive trade relations with China.


• Streamlined CFIUS mitigation agreements: The Investment Policy Memo directs CFIUS to “cease the use of overly bureaucratic, complex, and open-ended mitigation agreements for United States investments from foreign adversary countries” to reduce uncertainty for investors, reduce administrative burden, and increase US government efficiency. The Investment Policy Memo suggests that mitigation agreements should consist of concrete actions that companies can complete within a specific time, rather than perpetual and expensive compliance obligations. On one hand, this change may mean lighter audit requirements, less onerous annual reporting, less burdensome restrictions on operational access and/or control, and possibly a defined duration or sunset provision for mitigation. On the other hand, simplified mitigation options to address identified national security risk presented by a transaction may lead to more outright blocking of transactions.


• Broader CFIUS authority on “greenfield” investments: The Investment Policy Memo calls on Congress to broaden CFIUS jurisdiction to include reviews of “greenfield” investments to restrict foreign adversary access to US talent and operations in sensitive technologies (with a particular focus on AI). Currently, greenfield investments do not fall under CFIUS jurisdiction. To make such a change in CFIUS jurisdiction, however, Congress needs to pass legislation. As with any legislation, the time frame is uncertain, though this issue has previously received bipartisan support. If enacted into law, the impact on foreign investors engaged in greenfield investments will be substantial.


• Broader CFIUS authority over US farmland real estate: The Investment Policy Memo also notes that the Trump Administration will protect farmland, which is not often subject to CFIUS jurisdiction. Foreign ownership of and investment in US farmland has been the subject of increased scrutiny in policy circles and at the state level.


• Broader CFIUS authority over real estate transactions near military installations, again: The Investment Policy Memo also indicates that the Trump Administration will protect real estate near military and other sensitive government installations. In December 2024, updated regulations went into effect broadening the scope of CFIUS review by increasing the number of locations that may require a CFIUS filing because of their proximity to certain military or other sensitive US government facilities. It appears that these regulations will again be revised, and presumably the scope of implicated real estate will increase again.

Additional Investment Policy Memo provisions potentially relevant to investors

• Environmental reviews: The Environmental Protection Agency is directed to “expedite” environmental reviews for “any investment over $1 billion in the US.”


• US-PRC Income Tax Convention: The Treasury Department is directed to review whether to terminate the 1984 US-PRC Income Tax Convention. The Investment Policy Memo suggests that the Trump Administration seeks to disallow tax credits to US taxpayers on a go-forward basis for income taxes paid to China, as a deterrent for further investment in China. If China reciprocates, and disallows tax credits to its taxpayers’ investments in the US, this would also align with the Trump Administration’s goal of reducing Chinese investment in critical US industries and commodities.


• Auditing standards for public companies: The Securities and Exchange Commission (SEC) is directed to determine if adequate financial auditing standards are upheld for companies covered by the Holding Foreign Companies Accountable Act. The Holding Foreign Companies Accountable Act is a 2020 law that requires companies publicly listed on stock exchanges in the US to disclose information on foreign jurisdictions that prevent the Public Company Accounting Oversight Board (PCAOB) from conducting inspections. Under the law, which was directed at Chinese companies, such companies could be banned from trading and delisted from exchanges if the PCAOB is unable to audit specified reports for three consecutive years. The PCAOB had announced that it had secured an agreement with Chinese authorities to grant access to public accounting firms in China and Hong Kong. Notwithstanding that agreement, the Investment Policy Memo requires a further examination if appropriate auditing standards are being upheld.


• Variable interest entity and subsidiary structures: The Department of Justice is directed to review the variable interest entity and subsidiary structures used by foreign-adversary companies trading on US exchanges. A variable interest entity is a legal structure defined by the Financial Accounting Standards Board for situations where control over a legal entity may be demonstrated through means other than voting rights and is typically demonstrated through contractual rights. Such a structure may be employed in connection with a listing in the US where Chinese law prohibits voting control by foreigners.


• Fiduciary standards in pension plans: The Department of Labor (DOL) is directed to update fiduciary standards under the Employee Retirement Income Security Act of 1974 to ensure that foreign-adversary companies are ineligible to receive investments from US pension plans. Employers who sponsor a defined benefit plan can anticipate that the DOL will be providing guidance defining “foreign-adversary company” to inform plan fiduciaries of their duties with respect to investments in public market securities of foreign-adversary companies. In advance of this guidance, employers who sponsor a defined benefit plan are encouraged to determine whether the defined benefit plan maintains direct or indirect investments in public market securities of companies that are controlled by China, Russia, North Korea, or Iran.

More restrictive Outbound Investment Regulations are forthcoming

The Outbound Investment Regulations implemented in January 2025 extend to US persons investing in China (inclusive of Hong Kong and Macau), including foreign branches of US companies and US nationals involved in investment decision making at non-US entities. While the current Outbound Investment Regulations are subject to review pursuant to President Trump’s day-one America First Trade Policy to determine if the program sufficiently addressed national security concerns, the Investment Policy Memo is the first step by the Trump Administration to amend the program.

The Investment Policy Memo reflects a potentially dramatic expansion of the Outbound Investment Regulations to include more sectors and cover more transactions. Investors should be aware when investing in the sectors named by the Investment Policy Memo that such transactions may soon fall within the ambit of the Outbound Investment Regulations.

In addition to this Investment Policy Memo, restricting US-person investment into China is an issue that receives bipartisan support in Congress, and investors should expect this issue to remain at the forefront of executive and congressional attention in the coming months and years.

The Investment Policy Memo expands Outbound Investment Regulations in two major ways:

• Extending reach to new sectors, including biotechnology: The Investment Policy Memo indicates that the Trump Administration is considering expanding the sectors that are subject to the regulations. While the Outbound Investment Regulations currently apply only to semiconductors and microelectronics, AI, and quantum computing, the Investment Policy Memo proposes that the Outbound Investment Regulations be expanded to further apply to biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by China’s national military-civil fusion strategy. The Investment Policy Memo orders the review of whether these sectors should be added to the Outbound Investment Regulations and further directs the continued review and update of covered sectors.


• Removing exceptions currently existing under the outbound investment regulations: The Investment Policy Memo also appears to contemplate restricting investment types that currently constitute excepted transactions under the Outbound Investment Regulations. The Investment Policy Memo states that the Trump Administration will consider “applying restrictions on investment types including private equity, venture capital, greenfield investments, corporate expansions, and investments in publicly traded securities, from sources including pension funds, university endowments, and other limited-partner investors.” While greenfield investments are already covered by the Outbound Investment Regulations (see 31 CFR. 850.210(4)), investments in publicly traded securities are currently excepted (31 CFR 850.501(a)(1)(i)). Most significantly for institutional investors, the Investment Policy Memo contemplates eliminating the current exemption for US limited partner investments in a pooled investment fund if the US limited partner secures a binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be restricted under the Outbound Investment Regulations (31 CFR 850.501(a)(1)(iii)). Removal of this exemption may impose liability on US institutional investors for fund investments in prohibited sectors involving countries of concern and require substantially more diligence and restrictions on investments.

Conclusion

The Investment Policy Memo provides valuable insight into the Trump Administration’s policies and approach to US investment activity – which encourage and streamline access and investment by US allies and partners while further restricting cross-border investment involving foreign adversaries. While the changes to CFIUS appear to signal an easier pathway for foreign investment into the US for US allies and partners and all foreign limited partners, the suggested changes to the Outbound Investment Regulations will further restrict US persons seeking to invest in key sectors in China. The focus now is on implementation of these directives, which are likely to roll out over the coming weeks and months.

DLA Piper’s National Security and Global Trade practice covers both CFIUS and the Outbound Investment Regulations and includes teams from our Corporate, Regulatory, and Government Affairs practices, including former CFIUS regulators. DLA Piper’s public company advisors are available to discuss questions related to financial auditing standards for companies covered by the Holding Foreign Companies Accountable Act in addition to variable interest entity related disclosures and guide those issuers through potential challenges that they may face.

For guidance on CFIUS and the Outbound Investment Regulations, please contact the authors of this advisory, our CFIUS and outbound investment attorneys, or any partners within our firm’s National Security and Global Trade group.