The US restricts outbound investment to China

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Impact of US investment restrictions on US-China relations | How did the WTO impasse come to pass? | Do subsidies harm or help? | Offshoring services | More research from Hinrich Foundation

Impact of US investment restrictions on US-China relations

The White House issued a long-awaited executive order last week, accompanied by an advance notice of proposed rulemaking from the US Treasury Department. Hogan Lovells summarizes the key provisions. Martin Chorzempa of the Peterson Institute for International Economics calls the restrictions a sensible compromise, while the Center for a New American Security says they offer few surprises.  Meanwhile, signs of economic weakening and decoupling continue to emerge from China. China’s foreign investment gauge declines to a 25-year low writes Bloomberg News, while the Wall Street Journal describes how the US and China are breaking up, in charts.

Mentioned publications

1. Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern – The White House, August 9, 2023

2. Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern – Office of Investment Security, US Department of Treasury, August 14, 2023
   How will the latest US investment restrictions affect US investment in China?

3. Biden Administration issues long-awaited executive order on outbound investment screening – Hogan Lovells, August 10, 2023
   A summary of the key provisions of the proposed rules.

4. Biden's new outbound investment restrictions with China are a sensible compromise, but further tightening is likely – Martin Chorzempa, Peterson Institute for International Economics, August 10, 2023
   How should investors interpret the new US restrictions on investment in China?

5. CNAS Responds: Outbound Investment Executive Order – Center for a New American Security, August 9, 2023
   The new executive order offers a few surprises to those following longstanding deliberations.

6. China’s Foreign Investment Gauge Declines to 25-Year Low – Bloomberg News, August 7, 2023
   Per one measure, new foreign investment in China fell to its lowest level in 25 years.

7. How U.S. and China Are Breaking Up, in Charts – The Wall Street Journal, August 12, 2023
   Trade statistics point to a significant decline in trade between the US and China.

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How did the WTO impasse come to pass?

Grady McGregor, writing in The Wire China, describes how the WTO became sidelined by forces exerted by its two most powerful members. Emilie Kerstens and William A. Reinsch of the Center for Strategic and International Studies analyze the US proposal to use non-violation nullification or impairment (NVNI) claims to resolve disputes involving national security claims.

Mentioned publications

1. Sidelined – Grady McGregor, The Wire China, August 13, 2023
   How did the impasse between the US and China at the WTO come to be? 

2. Straight to Rebalancing? Non-violation Nullification or Impairment Claims for National Security Measures – Emilie Kerstens and William A. Reinsch, Center for Strategic and International Studies, August 8, 2023
   Is the US proposal to use NVNI claims at the WTO viable?  

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Do subsidies harm or help?

Reliance on subsidies harms productivity and competition argues Adam S. Posen of the Peterson Institute for International Economics, while Hosuk Lee-Makiyama in East Asia Forum raises questions about the ability of other countries to attract investment while competing with US subsidies. On the other hand, Dani Rodrik, Réka Juhász, and Nathan Lane, describing their research in Project Syndicate, say that economists are reconsidering industrial policy and finding positive outcomes.  

Mentioned publications

1. The True Costs of Subsidies War with China – Adam S. Posen, Peterson Institute for International Economics, July 19, 2023
   Reliance on subsidies can bring about a range of negative results for productivity and competition. 

2. US industrial policy the flipside of sanctions – Hosuk Lee-Makiyama, East Asia Forum, July 6, 2023
   US adoption of subsidies raises questions among trading partners. 

3. Economists Reconsider Industrial Policy – Dani Rodrik, Réka Juhász, and Nathan Lane, Project Syndicate, August 4, 2023 (drawing on their new paper entitled: The New Economics of Industrial Policy)
   New academic research demonstrates positive impacts of industrial policies. 

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Offshoring services

The Wall Street Journal highlights a trend toward importing services from professionals overseas to do work traditionally done domestically. 

Mentioned publications

1. Where to Find a $4-an-Hour Math Tutor With a Ph.D.? Overseas – The Wall Street Journal, August 6, 2023
   Is this the start of a long-term trend toward offshoring services? 

Mentioned publications from HF:

• Narrow-gauge, high stakes: Biden sets new investment restrictions on China
• Postcard from a disintegration: Inside the WTO’s fraying seams
• Subsidies and market access: Towards an inventory of corporate subsidies by China, the EU and the US

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