Amending Executive Order 13959Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies

Background

The amendment of Executive Order 13959 by President Trump significantly restricted U.S. investments in enterprises associated with the Chinese military. It was designed to curb the financial resources available to the People's Republic of China's military-industrial complex by disallowing American investments in listed companies deemed to support or facilitate military activities. The Order mandated divestiture processes, compelling U.S. investors to eliminate their holdings in identified companies, creating a new level of economic disengagement between the U.S. and China's military-linked sectors.

In addition to the economic consequences, the Order imposed an unusually broad regulatory burden on U.S. asset managers, financial institutions, and auditors, who now had to ensure compliance with restrictions on dealing in securities of designated companies. It effectively required the financial community to conduct due diligence and continuously monitor lists published by the Department of Defense and the Department of the Treasury to avoid inadvertent violations. This regulatory posture signaled a shift towards heightened scrutiny of international investments, with potential penalties for non-compliance.

The Order also had social policy implications, as it positioned the U.S. firmly against perceived threats from China, reverberating through diplomatic channels. This was an extension of broader, more confrontational U.S.-China relations under the Trump administration, which included trade wars and a reevaluation of China's role in global economic systems. The divergence from previous engagement policies aimed to reflect a national security prioritization, reshaping U.S. policy considerations on how to handle the strategic competitor.

Reason for Revocation

President Biden's revocation of the Order can be seen within the context of a larger ideological shift focusing on multilateralism and rebuilding alliances. The Biden administration sought to distance itself from unilateral measures that strained diplomatic and economic ties, particularly with allies in Europe and Asia who have varying relationships with China. By canceling the order, the administration aimed to realign the U.S. foreign policy approach away from aggressive containment strategies toward cooperative competitiveness.

Furthermore, the revocation was likely influenced by economic considerations. There was concern that the restrictions could inadvertently harm U.S. investors and financial markets, which rely on global interconnectedness. The Biden administration may have calculated that maintaining open lines for investment, albeit with oversight, would better serve long-term strategic interests by fostering interdependence that could temper outright adversarial relations with China.

The move also reflected a broader reassessment of national security priorities and economic strategies. By eliminating the order, the administration recognized the complexities of untangling U.S. financial systems from global networks and the potential economic disruptions such an attempt might cause domestically and internationally.

There was a recognition of balance necessary between cracking down on genuine security threats and participating in the global economy. Rather than blanket bans, the Biden administration might have preferred a more nuanced approach that incorporated targeted sanctions and diplomatic resolutions to concerns over military-supported commerce.

Winners

U.S. financial institutions emerged as clear beneficiaries from the revocation, as it eased the regulatory burden on monitoring and compliance obligations. Asset managers and mutual fund operators could realign their portfolios without the added complexity of ensuring divestment from a government-specified list of prohibited securities. This likely prevented potential financial losses and administrative costs associated with restructuring investments.

Affected Chinese companies experienced relief as their access to U.S. capital markets was restored. This reversal allowed them to maintain and encourage investment flows from American investors. Companies like Huawei Technologies, which had been previously linked to military activities, could now attempt to reposition themselves in the global market without immediate repercussions from U.S. financial restrictions.

Overall, the global financial markets benefitted through increased stability. The removal of broad, sweeping restrictions avoided the precedent of similar constraints potentially being applied to other countries, ensuring that the U.S. continued to appear as a consistent and reliable participant in international capital markets.

Losers

The primary groups disadvantaged by the revocation were hardline anti-China policymakers and advocates of economic nationalization strategies. These entities viewed the initial Order as an essential tool for curbing China's military expansion and safeguarding U.S. national security interests. Removing those barriers represented a step back in their goal to adopt a more protective and insulated economic sphere.

Some American manufacturing sectors, which face competition from Chinese enterprises benefiting indirectly from their country's military-industrial positioning, might also perceive the revocation as a setback. They could see the continuance of market access for these foreign competitors as a threat that undermines efforts to bolster domestic industries through reduced international competition.

On a broader geopolitical scale, certain American allies in the Asia-Pacific region who share concerns about China's regional behavior may have viewed the revocation skeptically. They might interpret it as a weakening resolve by the U.S. to carry through on tough measures against China, potentially complicating collaborative efforts to implement joint security and economic policies targeting undue Chinese influence.