Why It Matters
America's economic model depends on attracting foreign capital, but the national security apparatus is increasingly alarmed by who is writing the checks and what they are buying.
The Trump administration is aggressively rewriting how the United States screens foreign investment, tightening the screws on Chinese acquisitions while simultaneously trying to roll out the welcome mat for allies, according to a Congressional Research Service report published in late April. It offers a timely look at the mechanics and politics behind the Committee on Foreign Investment in the United States(CFIUS), the interagency body at the center of this balancing act.
A committee chaired by the Secretary of the Treasury and comprising 16 federal agencies, including the Departments of Defense, State, Commerce, Energy, and Homeland Security, reviews foreign acquisitions of U.S. businesses for national security risks. It also covers certain non-controlling investments in companies involved in critical technologies, critical infrastructure, and sensitive personal data of U.S. citizens, as well as real estate transactions near military bases and sensitive government facilities.
The CRS report makes clear that this legal structure, built over decades and most recently overhauled by the Foreign Investment Risk Review Modernization Act of 2018, is intact, but executive action is rapidly reshaping how it functions in practice.
The Big Picture
The review process has two phases. An initial 30-day review can be followed by a 45-day investigation if concerns remain unresolved. Parties may voluntarily file a notice or declaration, or CFIUS can initiate a review on its own. If national security concerns persist, CFIUS may recommend the President block or unwind the transaction. The President then has 15 days to act.
Presidents have used that authority sparingly. According to the report, only 11 transactions have been prohibited in the history of the program, with most of those occurring in the past decade. The Trump administration has already accounted for two of them, issuing presidential orders in both 2025 and 2026 to block People's Republic of China acquisitions of U.S. businesses.
The legislative backbone for all this is Section 721 of the Defense Production Act of 1950, which grants the President authority to suspend or prohibit foreign acquisitions that threaten national security. The Foreign Investment and National Security Act (FINSA), which passed in 2007, formalized the review process and expanded congressional oversight. The Foreign Investment Risk Review Modernization Act (FIRRMA), which passed in 2018, was the most significant expansion in decades, extending CFIUS jurisdiction to non-controlling investments and sensitive real estate transactions.
The Administration's Dual-Track Strategy on Foreign Investment Restrictions
The Trump administration is not applying its national security investment screening tools uniformly. The approach is explicitly country-differentiated.
On one track, the administration has directed CFIUS to tighten restrictions on investments from adversary countries, particularly China, in sectors including semiconductors, artificial intelligence, energy infrastructure, and sensitive personal data. The two presidential orders blocking PRC acquisitions represent the most aggressive use of CFIUS blocking authority in recent memory.
On the other track, the administration is working to ease the foreign direct investment review process for allies and partners. A "Known Investor Program" is under development, and in February 2026, the Treasury Department issued a Request for Information seeking public input on how to streamline CFIUS reviews while maintaining rigorous national security analysis. The goal, according to the report, is to encourage foreign direct investment from friendly nations that can contribute to U.S. economic growth and innovation without raising security concerns.
This dual-track approach aims to use CFIUS as a tool not just to block bad deals, but to actively shape the investment landscape in ways that favor allied economic relationships.
The Nippon Steel Precedent
One of the most consequential developments covered in the CRS report is the handling of Nippon Steel's proposed acquisition of U.S. Steel. President Biden blocked the deal in 2024 on national security grounds. President Trump ordered a new CFIUS review in April 2025 and subsequently approved the transaction, but reframed it as a "partnership" rather than an acquisition, sidestepping the ownership-based prohibition framework that had been the basis for Biden's block.
The implications of that move extend well beyond the steel industry. By re-characterizing the deal's structure, the administration signaled a willingness to use CFIUS not just as a gatekeeper, but as a deal-structuring tool. That is a meaningful precedent. Future transactions involving allied-nation investors could be engineered to fit a "partnership" framework that avoids triggering the formal prohibition mechanism, giving the executive branch more flexibility to approve politically or economically desirable deals without formally reversing a national security finding.
Political Stakes
For Congress
The committee's jurisdiction was dramatically expanded by FIRRMA in 2018, a bipartisan effort driven by alarm over Chinese acquisitions of U.S. technology companies. That legislative consensus has not dissolved, but the Trump administration's creative use of the "partnership" framing in the Nippon Steel case raises questions about whether the existing statutory framework gives Congress sufficient visibility into how deals are ultimately structured and approved.
For the Administration
CFIUS has become a front-line instrument of economic statecraft. The outbound investment restrictions, authorized under Executive Order 14105 and effective as of January 2025, extend that logic further, targeting U.S. investment into adversary nations' sensitive sectors, rather than just inbound foreign investment. Taken together, the inbound and outbound restrictions represent a significant tightening of the investment perimeter around advanced technology sectors.
For Democrats
Biden's block of the Nippon Steel deal was itself a politically motivated decision, widely seen as a concession to organized labor in a key electoral state. Trump's reversal, reframed as a "partnership," undercuts this action without fully resolving the underlying policy question of what level of foreign involvement in strategic American industries is acceptable.
For the Public
CFIUS reviews only a small subset of total foreign direct investment, and its mandate is explicitly limited to national security, not broader economic or industrial policy. But these decisions still have outsized consequences for which companies can access U.S. markets, who controls critical infrastructure, and how American data is handled by foreign-owned entities.
The Bottom Line
The CRS report on CFIUS comes as the rules governing foreign investment in the United States are being actively rewritten through executive action. The statutory framework remains intact, but the Trump administration is pushing the boundaries of how that framework is applied. It is blocking Chinese deals with unusual frequency while creating new pathways for allied-nation investors, and reframing transactions to avoid formal prohibition mechanisms.
The Nippon Steel precedent, in particular, calls for congressional attention. If the executive branch can approve a deal that was previously blocked on national security grounds simply by relabeling its structure, the oversight mechanisms built into FIRRMA and the Defense Production Act may need revisiting.
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