NRPLUS MEMBER ARTICLE T he coronavirus pandemic has once more put the dark side of globalization in the spotlight. On both sides of the aisle, there is an increasing sense that, in its current form, globalization has resulted in an over-reliance on Chinese-made goods at the expense of domestic manufacturing capacity. Senator Marco Rubio recently cited the need for “a 21st-century, pro-American industrial policy,” warning that “the depletion of America’s manufacturing sector has left us with a huge national-security vulnerability.” Senator Elizabeth Warren likewise offered vocal support for legislation aimed at limiting the quantity of Chinese-made pharmaceuticals in the United States’ drug supply. As countries close borders, cancel flights, and hoard medical supplies in a bid to defeat COVID-19, such critics are increasingly calling into question the benefits gained from open borders, global supply chains, and interconnected trade.
While skepticism toward globalization was rising even before the global pandemic, it is now clearly in the United States’ national-security interest to repatriate some manufacturing activity. In order to protect Americans from the shortages and panic-buying that have plagued the U.S. in the past few months, Washington needs a strategy to prioritize the domestic production of goods that serve a vital national-security interest. Fortunately, the Committee on Foreign Investment in the United States (CFIUS) provides a model of how this can be done.
As an interagency committee chaired by the U.S. Department of the Treasury, CFIUS adjudicates in-bound investments from foreign purchasers on national-security grounds. It does this by reviewing proposed foreign acquisitions of American businesses involved in critical technologies, critical infrastructure, and personal data. The rationale behind this policy is simple: While the U.S. generally encourages the flow of goods, capital, and investment across borders, when there is a national-security interest at stake, CFIUS steps in to evaluate whether a transaction would serve it. In certain cases, it has proposed blocking such transactions altogether, as happened in 2017 when the Trump administration, upon its recommendation, stopped a Chinese-backed investment firm from acquiring a U.S.-based semiconductor company.
The weaknesses that COVID-19 has exposed in our medical-supply chains provide one powerful example of why Washington needs a CFIUS-like entity to oversee certain aspects of American manufacturing. To take one glaring example, after several countries found recent Chinese-made shipments of protective equipment, test kits, and masks to be faulty, Beijing issued new, stricter export rules in a bid to boost quality control. This in turn created a huge bottleneck of much-needed personal protective equipment — masks, surgical gowns, and ventilators — at the same time that front-line workers were struggling with a severe dearth of such equipment.
A “CFIUS for all” entity would compile a list of items deemed to be in the national-security interests of the United States, by means of an interagency-review process. The entity could encourage companies to repatriate the domestic production of these items, using incentives such as subsidies or tax breaks. It could coordinate federal efforts to buy and stockpile goods that may be necessary in a crisis, make arrangements to ramp up production of such goods during an emergency, and, as a last resort, act under Congress’s commerce-clause authority to require that American companies repatriate production of them. The law creating the new entity could be strengthened further if it expanded the scope of CFIUS’s existing power to police foreign acquisitions of such companies. While commentators have speculated on the limits of Congress’s authority in this realm, the weight of current case law on that question makes it likely that a law along these lines, with a properly drafted connection to foreign commerce, would be upheld as constitutional.
Companies often move production offshore to minimize costs for consumers and increase profit. The pandemic has demonstrated how that instinct can backfire, rendering crucial global supply chains unreliable. To some extent, this realization may lead certain companies to unwind offshore production without a push from the federal government. But a CFIUS-like entity could step in when market forces were insufficient. The end result would be that our nation was protected the next time a pandemic, a nuclear incident, or another national emergency came around.
The COVID-19 pandemic can serve as an important turning point, helping governments and multinational corporations chart a new, and healthier, course forward that emphasizes national-security concerns and breaks our current addiction to increasing consumption at all costs. Creating a CFIUS-like entity to oversee the offshoring of certain products while also expanding CFIUS’s current review authority to include acquisitions of companies that produce such goods would go a long way toward reducing the vulnerabilities that the pandemic has exposed. Even after the present danger subsides, we won’t be out of the woods: We’ll need to prepare for the next national emergency, so we aren’t caught flat-footed again. Those preparations must begin now.
Varsha Koduvayur is a senior research analyst at the Foundation for Defense of Democracies, where she focuses on the Persian Gulf. Greg Everett is a writer and corporate lawyer based in Nashville, Tenn.