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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]."

Go deeper

"Atmospheric river" swings Northern California from drought to flood

Satellite view of the bomb cyclone swirling off the coast of the Pacific Northwest and the atmospheric river affecting California on Oct. 24. Photo: CIRA/RAMMB

A series of powerful "atmospheric river" storms are delivering historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest — triggering widespread power outages and flooding.

Why it matters: The strong atmospheric river, packing large amounts of moisture, is causing Northern California to whiplash from drought to flood.

“You blew it”: GOP activist turns on corporations over vaccine mandates

The chairman of the American Conservative Union said on "Axios on HBO" he accepts "Joe Biden is my president, and I want him to succeed," but predicted Republicans retake the House and Senate in 2022 — with greater than 50% odds Donald Trump runs in 2024.

The big picture: In a joint interview with his wife, Mercedes, Matt Schlapp also refused to share their vaccination status. And he told corporate America "you blew it" by embracing vaccine mandates and liberal social stances that have alienated GOP voters and politicians.

2 hours ago - Politics & Policy

Pelosi expects “billionaire’s tax” to pay for Biden social spending

Photo: Yasin Ozturk/Anadolu Agency via Getty Images

House Speaker Nancy Pelosi (D-Calif.) said Sunday she expects the chamber to pass the bipartisan infrastructure plan by week’s end, and alternatives to corporate tax hikes and a “billionaires tax” will be used to finance President Biden’s promised expansion to the social safety net.

Why it matters: Pelosi’s comments come as House and Senate leaders try to wrap up a deal. What will get cut — and how the remainder will be paid — are linchpins to a final agreement.