This latest CFIUS block marks the first time President Trump exercised his power to make such a final determination and only the fourth time a U.S. President has done so under the CFIUS statute. In fact, in most cases parties usually agree to abandon their plans once CFIUS identifies insurmountable national security concerns, so in general, acquisitions are rarely referred to the president.

According to a statement released by the White House, the particular national security concerns that led to President Trump's decision to block the Lattice acquisition include:

• the potential transfer of intellectual property to Canyon Bridge and the Chinese government's role in supporting this transaction (the only identified investor of Canyon Bridge is a company backed by Chinese state-owned entities: a country and government with a spotty intellectual property record whose relationship with the U.S. is less than cozy); and
• the importance of semiconductor supply chain integrity to the United States government and the use of Lattice products by the United States government (semiconductor technology is used across many industries, including automotive, aerospace and telecommunications, and perhaps most importantly: semiconductor technology has military applications).

CFIUS Trends

President Trump's frequent condemnations of China's economic policies began even before he took office. He often reiterated accusations of currency manipulation on the campaign trail and has continually criticized Chinese President Xi Jinping for not putting more economic pressure on North Korea to cease nuclear and ballistic missile tests. Along with his administration's "America First" agenda aimed at keeping jobs in the U.S. and preventing "bad deals" for American industry, President Trump's aggressive rhetoric towards China suggests that his first CFIUS block of a Chinese acquisition may only be the first of many future anti-foreign investment actions.

Congress appears to be on the same page: as we note in our recent article discussing CFIUS trends, there is bipartisan interest in using the CFIUS review process to curtail certain foreign investment in the U.S. and to expand the CFIUS process to address U.S. "economic security" in addition to national security.

On the other hand, the Trump Administration has stated that it welcomes foreign investment into the U.S. manufacturing sector and President Trump himself has energetically railed against the excessive regulatory burdens hurting business since his time on the campaign trail. He even signed a "2 for 1" Executive Order in his first month in office directing agencies to scrap two regulations for every new one that is enacted. So the current political environment, in which government regulations and oversight are largely characterized as excessive red-tape, does not appear particularly amenable to CFIUS reform that would likely result in greater government scrutiny and expenses. For now, no shift in CFIUS policy has been announced and the criteria CFIUS uses to assess foreign acquisitions remains unchanged.

Takeaways for Foreign Investors and U.S. Targets

• Very few transactions are blocked: While CFIUS is currently reviewing an unprecedented number of transactions and the failed Lattice deal highlights the impediments, time and costs associated with pursuing or inviting foreign investments in the United States, it is important to recognize that few transactions are ultimately prohibited. So, while obtaining experienced CFIUS counsel as early as possible is a must, potential CFIUS concerns should not be cause for outright rejection of opportunities involving foreign investment.
• Not all foreign investment presents a high CFIUS risk: The Lattice transaction largely owes its failure to the particular type of target company involved (a manufacturer of semiconductors, a sensitive technology with possible military applications, whose products are used by the U.S. government) and the particular acquirer (a company backed by the government of China). It is not surprising that a highly sensitive product combined with the involvement of a contentious foreign government caught the eye of CFIUS and President Trump. But even when there is inherent CFIUS risk, restructuring the transaction can potentially mitigate the risk and result in a viable plan.
• Politics are at play: The perspectives of the various domestic players involved, including individuals in the Trump Administration, those at CFIUS, members of Congress, leaders in the private sector and the media all contribute to constantly shifting U.S. policies and attitudes towards foreign investment. The actions of foreign governments and the ways international political and economic events develop also play a role. Importantly, these policies and attitudes are often inconsistent across industries. Thus, CFIUS risk cannot accurately be assessed in a political vacuum: testing the current appetite for a particular type of foreign investment is a must.