Money is power, both at home and abroad. For years, members of Congress have attempted to restrict U.S. outbound investment into China,1 citing risks that American dollars are being used to accelerate the military development of a strategic adversary.2 Though the idea of outbound investment review has been percolating in Washington since 2018, Congress has struggled to translate it into statute. The United States’s first outbound screening regime ultimately arrived via presidential action. On August 9, 2023, President Joe Biden signed Executive Order 14,105 on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern3 (the EO), representing yet another stride in the United States’s turn against China taken through executive, rather than legislative, action. This political buildup exposes a trade-off in congressional efforts to restrict the same statutorily delegated executive powers from which the EO drew authority: if Congress wants to tie the President’s hands, it must be capable of effectively legislating to fill the policy void. But, amid continuing legislative gridlock, executive emergency authorities are necessary tools for responding to mounting geopolitical concerns.
Outbound investment review has had a long, failed history in Congress. The mechanism was first conceived during 2018 revisions to the Foreign Investment Risk Review and Modernization Act, the statutory authority for the Committee on Foreign Investment in the United States (CFIUS), which reviews certain inbound investments that create national security risk.4 A “reverse CFIUS” outbound screening mechanism was again proposed in the 2021 National Critical Capabilities Defense Act (NCCDA) but removed from consideration after opposition from business and industry.5 The CHIPS Act of 20226 also included a version that was ultimately scrapped.7 Most recently, the Senate version of the 2024 National Defense Authorization Act (NDAA) included a provision requiring mandatory notification for certain investments in China that was ultimately dropped from the final version.8
In light of these mired congressional efforts, those anticipating outbound review turned their attention toward the Biden Administration, which had articulated support for and collaborated on related legislative efforts since 2021.9 And, indeed, the mechanism ultimately landed by executive order.10 EO 14,105 restricts select outbound U.S. investment in semiconductors and microelectronics, quantum information technologies, and AI systems.11 Though the EO is framed as applying broadly to outbound investments directed toward “countries of concern,” its annex identifies the People’s Republic of China, including Hong Kong and Macau, as the sole country in this category.12
President Biden issued EO 14,105 under the authority of the International Emergency Economic Powers Act13 (IEEPA), the National Emergencies Act14 (NEA), and 3 U.S.C. § 301.15 In accordance with this statutory framework, the EO states that the development of sensitive technologies by China constitutes an “unusual and extraordinary threat” to U.S. national security pursuant to IEEPA and declares a “national emergency” in response to this threat pursuant to the NEA.16 The threat stems from the “comprehensive, long-term strategies” used by China to “achiev[e] military dominance,”17 including developing dual-use technologies18 and exploiting intangible benefits of U.S. investment.19 The national security risks created justify outbound capital controls despite the United States’s overall commitment to open cross-border investment.20
The EO outlines the broad strokes of the outbound restrictions and directs the Treasury Secretary to issue detailed, binding regulations giving effect to its requirements.21 Operationally, the program will (1) require U.S. persons to notify the government of a broader set of transactions involving foreign persons connected to China related to a covered technology or product (“notifiable transactions”) and (2) ban U.S. persons from engaging in a narrower set of transactions of the same nature (“prohibited transactions”).22 Concurrently with the release of the EO, the Treasury Department issued an Advance Notice of Proposed Rulemaking that kicked off a forty-five-day public comment period on the definitions, scope, and procedures of the final restrictions.23
Though the final Treasury regulations will define precisely which outbound investments are restricted, the language of the EO already makes clear that this program is more narrowly scoped than many had expected. The EO had been widely anticipated and described as “reverse CFIUS.”24 However, unlike CFIUS, which conducts resource intensive, case-by-case reviews of select inbound investments of security concern, EO 14,105’s outbound regime does not involve preclearance or individual reviews. Instead, the EO reflects what the Biden Administration has called a “small yard, high fence” strategy25 to protect critical U.S. technologies, targeting a narrow set of products with more restrictive controls. Given the United States’s desire to avoid full “decoupling” from China26 and the unknown costs of further escalation, the EO represents a measured step in countering legitimate security concerns amidst mounting geopolitical tension.27
The political history of EO 14,105 highlights a distinct area of separation of powers interplay. Despite bipartisan antagonism toward China, efforts to pass hawkish legislation have been mired by division within Congress.28 As a result, recent economic policy toward China has largely been driven by presidents exercising statutorily delegated emergency economic powers.29 The road to outbound review demonstrates how efforts in Congress to restrain executive emergency authorities, including the same powers invoked in EO 14,105, would create a lawmaking gap during periods of sustained legislative gridlock. A strong congressional hand in crafting the nation’s policy vis-à-vis China, especially when those policies are principally economic, can accurately effectuate legislative intent while restraining presidential authority. But, when legislative inaction renders Congress’s hand weak, the exercise of delegated executive powers is critical to driving foreign policy in a world where geopolitics evolve at an independent velocity.
Despite a bipartisan “race to be tough on China,”30 the relative lack of targeted legislation passed by Congress points to underlying disagreements over how to counter China.31 Consider the CHIPS Act, perhaps the most notable legislative effort in this area. The Act was stripped of what many viewed as stricter anti-China provisions, including restrictions on research funding and immigration,32 to pass both chambers.33 Investment screening has frequently divided pro-business and pro-security factions.34 And partisan standoffs over domestic issues add to the gridlock. For example, a review mechanism in the revised 2022 NCCDA was caught in the crossfire of Senate debate over climate change and health care provisions in the Build Back Better Act.35 And again, despite the investment screening amendment to the 2024 NDAA passing ninety-one to six in the Senate,36 it was ultimately not included in the final bill after Congress remained gridlocked over defense spending, transgender healthcare, and abortion-related provisions for much of 2023.37 Efforts to expand the CHIPS Act are likely to meet the same fate, given Republican concerns over the spending authorized by the original package.38
In the face of conflicting congressional priorities, it is perhaps unsurprising that the United States’s China policy has been largely driven by the Executive. The Trump and Biden Administrations have taken dozens of executive actions on issues “[c]ritical to the U.S.-China [r]elationship” since 2017,39 from President Trump’s prohibition of transactions in publicly traded securities issued by “Communist Chinese military companies” (CCMCs),40 to President Biden’s order expanding the number of CCMCs,41 to the semiconductor export controls issued in October 2022.42 The expansion of CFIUS through statutory updates in 201843 was a brief legislative interlude in a pattern of continued executive action against China, of which EO 14,105 is the latest iteration.
These executive actions against China, including EO 14,105, are enabled by a sweeping reading of presidential authority under emergency economic statutes, the most notable of which is IEEPA. Though originally enacted to curb what was viewed as an “unlimited grant of authority for the President to exercise . . . broad powers in both the domestic and international economic arena, without congressional review,”44 IEEPA has, in practice, reauthorized broad executive power in this realm.45 In a series of decisions, including Dames & Moore v. Regan,46 federal courts interpreted presidential IEEPA powers broadly and deferentially.47 The executive branch has also long read IEEPA broadly to cover situations that appear usual and ordinary, historically without much congressional objection.48 As a result, IEEPA has been operationalized to authorize sweeping presidential authority in foreign affairs and related domestic economic policymaking, as long as the actions are defined in terms of protecting national security.49
Despite the continued use of authorities like IEEPA for lawmaking vis-à-vis China, members of Congress seem concerned about these powers running amok: President Trump’s invocations of IEEPA authority, including to issue tariffs on Mexican imports over the border crisis, fueled congressional concerns over abuses of statutory authority.50 Since 2018, bipartisan groups of lawmakers have introduced a slew of legislation to curb executive economic authorities, including IEEPA,51 by increasing congressional involvement or narrowing the scope of justified “national security” concerns.52 These efforts parallel arguments to restore the proper separation of powers in other domains, where executive action in the face of congressional inaction has been criticized as an improper extension of presidential lawmaking authority.53
There is an ostensible incongruity between congressional efforts to curb presidential emergency powers on one hand and acquiescence to the use of such powers against China on the other. Certainly, there are separation of powers risks to presidents continuously crafting economic, trade, and investment policy using the justification of national security.54 But the political history of outbound investment screening demonstrates that attempts to restrict these executive powers lack a crucial functional antecedent: the ability for Congress to effectively articulate a China policy and legislate accordingly. When it comes to China, messy sets of commercial and geopolitical interests create uniquely stark divisions within Congress over what our economic and security approach should be. But in order to make compelling the call for lawmaking vis-à-vis China to be done “through legislation, rather than executive fiat,”55 Congress must demonstrate a cohesive vision for countering China, or, at the very least, the ability to arrive at a compromised consensus.
Executive lawmaking like EO 14,105 allows Congress to both criticize the EO as simultaneously too broad and too narrow, too harmful to U.S. innovation56 and too weak on national security,57 without having to overcome gridlock internally or formulate an actual set of compromises on legitimate, but competing, policy priorities. However, rising concerns over “the China question” domestically and mounting tensions abroad necessitate governmental action on the issue.58 Thus, EO 14,105 underscores a tradeoff in efforts to restrict executive emergency power that members of Congress may well recognize — even if dominant executive economic and security powers may entrench presidential power, they are a necessary tool during periods of legislative inaction in order to meet our national foreign policy imperatives.