Apr 9, 2019

Anti-China rhetoric could cause trouble for U.S. tech investors

Illustration: Lazaro Gamio/Axios

U.S. tech startup investors have spent the past decade trying to deepen ties with China, but some of those efforts may soon backfire. Particularly as anti-China rhetoric continues to ramp up on Capitol Hill.

The big picture: Part of this relates to last year's changes to the Committee on Foreign Investment in the United States (CFIUS), which used to focus on foreign entities buying control of U.S. companies in a way that could pose national security concerns.

  • Companies caught up by CFIUS traditionally have been involved in sectors like metals, infrastructure and semiconductors. But we've also seen it begin to expand into the much broader area of digital data. For example, CFIUS this year is requiring Chinese majority owners to sell both LGBTQ dating app Grindr and digital health network PatientsLikeMe.
  • CFIUS now can also apply to minority stakes of as little as 10% or 20%, particularly if they include a board seat. For example, SoftBank and Uber are still awaiting CFIUS approval for their early 2018 transaction, which is why there still aren't SoftBank reps on the Uber board.

Arguably a more consequential change is being debated over at the U.S. Commerce Department, which is seeking to define "emerging technologies" for the purpose of export controls.

  • The draft list includes such things as AI, robotics and biotech. If this stands, U.S. startups would essentially need federal government permission to sell their products to foreign countries (e.g., China).
  • Even more problematic is that the new rules could also impact so-called "deemed exports," or products "released" to foreign nationals living inside the U.S.
    • This not only means sales, but even foreign nationals involved in product development. For example, imagine a California startup that has Chinese engineers on H-1B visas. The company, arguably, would need an export license for those engineers to work on something like AI software.

I've also begun to hear some investors speculate that D.C. could push for a sort of reverse CFIUS, affecting outbound investment in Chinese companies (or even investment funds) that are involved in such emerging technologies.

  • President Trump recently criticized Google for allegedly helping the Chinese military instead of the U.S. military, before Google CEO Sundar Pichai persuaded him otherwise.
  • The takeaway is that Trump is worried about the consequences of Chinese technology advancing faster than American technology. And this isn't just a Trump thing, or a Republican thing.
  • "There's a lot more sensitivity about the AI race than there was just six months ago," a financial industry lobbyist tells me. "I could certainly see some enterprising member of Congress going in the direction of [capital outflow controls]."

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Coronavirus dashboard

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  1. Global: Total confirmed cases as of 12:30 a.m. ET: 5,495,061 — Total deaths: 346,232 — Total recoveries — 2,231,738Map.
  2. U.S.: Total confirmed cases as of 12:30 a.m. ET: 1,662,302 — Total deaths: 98,220 — Total recoveries: 379,157 — Total tested: 14,604,942Map.
  3. World: Italy reports lowest number of new cases since February — Ireland reports no new coronavirus deaths on Monday for the first time since March 21 — WHO suspends trial of hydroxychloroquine over safety concerns.
  4. 2020: Trump threatens to move Republican convention from North Carolina — Joe Biden makes first public appearance in two months.
  5. Public health: Officials are urging Americans to wear masks over Memorial Day.
  6. Economy: New York stock exchange to reopen its floor on Tuesday — White House economic adviser Kevin Hassett says it's possible the unemployment rate could still be in double digits by November's election — Charities refocus their efforts to fill gaps left by government.
  7. What should I do? Hydroxychloroquine questions answeredTraveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
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Updated 33 mins ago - Politics & Policy

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

Countries where novel coronavirus cases are falling may be hit with a "second peak" if they relax restrictions too soon, World Health Organization emergencies chief Mike Ryan warned during a briefing Monday. "We're still very much in a phase where the disease is actually on the way up," he added.

By the numbers: Brazil on Monday recorded for the first time more deaths from the novel coronavirus in a single day than the United States, Reuters notes. Brazil reported 807 deaths from COVID-19 in the past 24 hours, compared to 620 in the U.S. for the same period.

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