A policy blueprint for the Trump administration’s outbound investment screening regime

As the Trump administration enters its second term, addressing economic and military threats posed by the People’s Republic of China (PRC) will remain a cornerstone of its foreign policy and legislative agenda. One area primed for action is the expansion of outbound investment restrictions targeting companies and securities associated with the PRC’s military-civil fusion system, human rights abuses, and fentanyl trade. The policy momentum for strengthened outbound restrictions will likely be led by the administration’s reshaped national security team. The new team will include Representative Michael Waltz as national security advisor, Senator Marco Rubio as secretary of state, and Representative Elise Stefanik as ambassador to the United Nations—all of whom collaborated on outbound investment legislation during their time in Congress. Informed by the national security team’s collective legislative background, the Trump administration should craft an outbound screening regime focused on three core issues: expanded sanctions authorities, sector-specific restrictions, and broader prohibitions on publicly traded PRC securities and derivatives.

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During his first term, President Trump issued an executive order that prohibited “U.S. persons” from engaging in certain transactions with publicly traded securities issued by “Communist Chinese Military Companies.” The executive order and companion legislation in the 2021 National Defense Authorization Act empowered the Department of the Treasury’s Office of Foreign Assets Control (OFAC) to publish and maintain a list of restricted PRC military companies. President Biden then issued his own executive order in 2021, which amended Trump’s and expanded the scope of the list to cover Chinese surveillance companies. This list—now called the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List—is a powerful sanctions tool that enables OFAC to designate any PRC company that supports military-civil fusion or surveillance technology. Despite this wide authority and bipartisan congressional pressure, however, the Biden administration never updated the initial list after its publication in 2021. The incoming Trump administration should broaden the definition of covered entities and prioritize increasing the number of PRC companies on a non-SDN (Specially Designated Nationals) prohibited investment list.

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The first designations on an updated list could be publicly traded PRC companies already designated on other US government blacklists, such as the Bureau of Industry and Security Entity List, Military End-User List, Uyghur Forced Labor Prevention Act Entity List, the Federal Communications Commission’s Covered List, and the Department of Defense’s 1260H list. Expanding the existing NS-CMIC List to include other blacklisted PRC companies would require updated definitions through an amended executive order or legislation. If enacted, this policy would enable the US government to close an economic security policy gap. This gap currently allows Americans to invest in blacklisted PRC military companies and human rights abusers despite the same PRC companies being subject to trade restrictions. The expansion of authorities for a revised NS-CMIC List could also include a 50 percent rule or control definition that would immediately expand the scope of the list to include majority-owned subsidiaries of named entities. The NS-CMIC List currently does not include prohibitions on subsidiaries. This is a straightforward policy already used by OFAC for other sanctions programs. A 50 percent rule for the NS-CMIC List would have an immediate chilling effect on the PRC’s military-industrial complex. Finally, the administration and Congress should expand authorities to allow Treasury to issue outbound restrictions on PRC companies that manufacture fentanyl precursors and support the Chinese Communist Party’s (CCP) ongoing genocide and human rights abuses in Xinjiang. 

While expanding the NS-CMIC List is an important first step, an effective outbound screening mechanism cannot rely exclusively on listing individual PRC entities. As history has repeatedly shown, the US government’s highly bureaucratic entity listing processes are structurally misaligned with the agile evasion strategies employed by targeted foreign entities. The incoming National Security Council and Department of Government Efficiency should examine ways to streamline the disparate policy processes used to create and maintain blacklists—a policy issue that industry has long championed. In the meantime, though, the new administration’s outbound policy must expand beyond lists to include tightly defined sectoral restrictions on the most high-risk technologies and sectors that jeopardize America’s security. These include hypersonics, quantum, advanced computing, artificial intelligence, semiconductors, and other critical defense articles and dual-use technologies on the US Munitions List and the Commerce Control List. PRC companies regularly evade US economic security restrictions. This type of sectoral approach will give the administration wider authority to crack down on CCP efforts to use US technology and capital to build a military that directly threatens the lives of American armed service members. 

The Trump administration’s outbound mechanism should also close the loopholes in the Biden executive order by including broader prohibitions on publicly trading securities issued by high-risk PRC entities. American investors and funds purchase billions of dollars of PRC securities each year, including securities issued by PRC military companies and other large PRC companies that use slave labor and help the CCP perpetuate genocide. The new outbound regime should expand the covered activities section of the Biden executive order to include prohibitions on all critical technologies subject to sectoral restrictions and securities issued by PRC companies that use and/or benefit from Uyghur forced labor.

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The overall success of the Trump administration’s outbound investment screening regime depends on effective enforcement. To detect evasion and prevent American capital from directly funding our adversaries, the White House should direct the Intelligence Community (IC) and the Office of the Director of National Intelligence (ODNI) to prioritize economic security issues. A practical first step would be to expand the ODNI’s Office of Economic Security and Emerging Technology (OESET). Reallocating or adding resources for intelligence collection and analysis to support the enforcement of economic security regulations—including outbound and export controls—is needed. However, resource allocation alone is insufficient. A comprehensive review of authorities for OSINT and financial data is also necessary to ensure that the Central Intelligence Agency, National Security Agency, Federal Bureau of Investigation, and other non-IC agencies can effectively monitor global capital and investment flows associated with high-risk PRC companies. This review must also ensure the IC does not overclassify financial intelligence, a key ODNI policy issue that could undermine efforts to engage with allies on the threats posed by PRC capital flows.

To safeguard American economic and national security, the Trump administration should implement a targeted outbound investment screening regime to counter the PRC’s military-civil fusion system, slave labor, and fentanyl trade. By expanding the NS-CMIC List, introducing sectoral restrictions on critical technologies, and implementing prohibitions on publicly traded PRC securities, the Trump administration can close key loopholes exploited by PRC companies and the CCP. Enhanced Treasury enforcement and intelligence capabilities will ensure resilient measures against evasion tactics. A targeted and well-enforced outbound investment screening regime will allow the United States to increase its economic sovereignty and more adequately defend against Beijing’s increasingly complex financial and supply chain warfare.

Kit Conklin is a nonresident senior fellow at the Atlantic Council’s GeoTech Center.

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