The end of the year is approaching, and Congress is again trying to pass a bill to regulate outbound investment into certain Chinese sectors as part of the FY25 National Defense Authorization Act. Lawmakers have been trying to get something done to address the perceived issue but have routinely fallen short. However, now there is a sense of optimism that this year could be different.
The most concrete proposal is included in the Senate’s NDAA draft. It would require U.S. companies to disclose investments in China related to advanced semiconductors, artificial intelligence, quantum computing, hypersonics, satellite-based communications, and LiDAR remote sensing technology. A similar measure, sponsored by Senators John Cornyn (R-Texas), Bob Casey (D-Pa.), and Dan Sullivan (R-Alaska), passed the Senate last year in a 91-6 vote, so the legislation is likely to face little opposition in the upper chamber.
Despite the near-unanimous support in the Senate, the bill was removed from the final NDAA text due to opposition from key House Republicans, including House Financial Services Committee Chair Patrick McHenry (R-N.C.). McHenry has argued for a sanctions-based approach instead, which would target specific companies instead of sectors but impose greater restrictions on the economic interactions possible with the entities.
While McHenry has not publicly indicated a change in his views on the Senate bill, House Foreign Affairs Committee Chair Michael McCaul (R-Texas), who supports the Senate measure, is leading negotiations to reach a compromise that McHenry can back. McCaul told Politico recently that he thinks the talks are “going in a good direction.” Rep. Andy Barr (R-Ky.), who is also involved in the search for a deal, added that he feels the two sides are closer than in past discussions in comments to Politico as well.
With Congress now on recess until after Election Day, any breakthrough will likely happen once lawmakers return in mid-November. The question is if House Republicans are close enough to have an agreement that can be included in this year’s NDAA. While there is optimism among the lawmakers pushing for a deal, there is still work to be done. Ultimately, the decision likely rests with McHenry, as it is doubtful that any outbound investment legislation can pass without his support. These talks will be important to follow in Congress’s lame duck session and could be one of the most contentious debates around the NDAA.
In the background of these congressional negotiations, the Treasury Department aims to finalize its outbound investment regulations. After releasing an outline for a rule in 2023, the Biden administration formally proposed the regulations in June 2024. According to The New York Times, the Treasury Department aims to finalize the restrictions by the end of this year. If unchanged from the proposal, the regulations would allow the government to block certain investments by American companies in China in semiconductors and microelectronics, quantum information technologies, and AI. However, not all investments will be prohibited under the rules. Instead, some will require notifying the government about the transaction, similar to the system the Senate proposal would establish.
While the timing for the completion of the Treasury Department’s rulemaking could slip, potentially leaving it for the next president’s administration to finish, there is also a chance that a future Trump administration would revamp it anyway. Former President Donald Trump has focused more on tariffs on the campaign trail than outbound investment restrictions. Still, given his hawkish stance toward China, it is easy to imagine that he would seek to establish stricter regulations. To achieve this, a Trump Treasury Department could expand the number of sectors covered by the rules or lower the threshold for what investments can be blocked.