New outbound investment screening measures on securing strategic technologies in global supply chains are set to intensify.
March 3, 2025: The Taiwan Semiconductor Manufacturing Company (TSMC) fabrication plant in Phoenix, Arizona. TSMC, the leading producer of AI chips, plans to invest an additional $100 billion in expanding its facilities across the U.S.
March 3, 2025: The Taiwan Semiconductor Manufacturing Company (TSMC) fabrication plant in Phoenix, Arizona. TSMC, the leading producer of AI chips, plans to invest an additional $100 billion in expanding its facilities across the U.S. © Getty Images
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In a nutshell
While U.S. screening identifies risks from China, the EU is country-neutral
Changing security threats are likely causing screening to diversify
China and closely connected economies will fall under more scrutiny
In January 2025, the United States and the European Union each announced new outbound investment screening measures. These aim to enhance efforts to safeguard vital sectors – such as technology and critical infrastructure – from potential exploitation by economic rivals, especially China.
Outbound investment screening happens when governments regulate or restrict investments by domestic companies or individuals in foreign markets. Usually, these policies stem from geopolitical concerns focused on protecting national security, strengthening economic influence and preserving technological and economic leadership. The U.S. and EU are now navigating a delicate balance between economic openness and security, ushering in a new era of investment oversight with far-reaching implications.
Key differences in U.S. and EU outbound investment screening
During President Donald Trump’s first term, the U.S. introduced legislation to screen outbound investments. This was in response to growing concerns within government circles as officials feared that American companies were inadvertently helping advance China’s technological capabilities, which could threaten U.S. national security. A major worry was the forced technology transfers imposed on businesses operating in China.
Another key factor was unease over Chinese President Xi Jinping’s ambitions. His strategy, outlined in initiatives like Made in China 2025 and Vision 2035, aimed to position Beijing as a global leader in critical technology sectors.
In 2018, the Committee on Foreign Investment in the United States received a mandate to include new screening measures. The move allowed the committee to regulate both inbound and outbound investments. The legislation focused on sensitive high-tech sectors – semiconductor production, artificial intelligence, cloud computing and essential infrastructure – to protect them from foreign exploitation. It also empowered the government to block or review investments that could transfer sensitive technologies overseas, particularly to nations viewed as adversaries, like China.
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Facts & figures
American investment abroad vs FDI in the U.S.
U.S. direct investments abroad increased by $364 billion in 2023, while foreign direct investments rose by $227 billion.
U.S. direct investments abroad increased by $364 billion in 2023, while foreign direct investments rose by $227 billion. © GIS
Alongside investment screening, the U.S. has tightened export controls to prevent Chinese firms from obtaining its innovative technologies. These include extraterritorial legal measures such as the Entity List and the Foreign Direct Product Rule to curb China’s access to advanced semiconductor manufacturing technology.
Meanwhile, the EU’s approach to outbound investment screening is evolving as part of its push for technological sovereignty, especially in areas such as AI, cybersecurity and critical infrastructure. The bloc fears losing control of its advanced technologies and related intellectual property to competitors. Brussels also worries that these technologies could be misused to undermine the EU’s strategic interests and global competitiveness.
The European Commission has voiced apprehension about Beijing’s growing technological influence and the potential risks for European investments in supporting Chinese companies perceived as security threats, such as Huawei in the 5G sector.
Yet, Brussels has consistently failed to adequately safeguard its strategic interests. It still lacks a comprehensive and binding framework for outbound investment screening. Instead, individual member states have their own distinct rules and scrutiny mechanisms, particularly for investments tied to critical infrastructure or emerging technologies.
The EU has often proposed establishing more unified regulations to screen outbound investments, spurred by cases where European companies operating in the Chinese market have faced forced technology transfers. Many of these companies are pressured to share proprietary technology or intellectual property with Chinese partners, often as a prerequisite for accessing the market.
While the EU has worked to balance overseas economic interests with security concerns, it is unclear whether these efforts will yield a more rigorous outbound investment regime, especially for quantum computing, cybersecurity and AI.
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Facts & figures
Inward and outward FDI in the EU
To address the challenges of investing abroad, the U.S. and the EU are adopting more sophisticated approaches to outbound investment screening. The difference in their approaches is that while the U.S. has a more established framework and a clear focus on China, the EU is still working to develop more cohesive policies.
The geopolitical goals are clear: Both aim to maintain their technological leadership, protect national security and restrict the influence of rival powers in vital technology sectors.
New foreign investment screening measures
The latest outbound investment screening measures rolled out by the U.S. and EU seek to further shield their international supply chains from exploitation by economic adversaries.
In early January, the U.S. finalized its Outbound Investment Security Program (OISP) to block overseas investments by American businesses in AI, semiconductors and quantum technologies that jeopardize national security. Meanwhile, in mid-January, the EU’s executive body issued a non-binding Recommendation urging member states to review outgoing corporate investments in similar strategic sectors.
While the OISP and the Recommendation share some similarities (such as their emphasis on regulating and monitoring foreign investment in the same strategic sectors), they differ sharply in their specific frameworks, objectives and enforcement methods.
For instance, the Recommendation only requires EU member states to collect data, evaluate potential transaction risks and submit the findings to the European Commission. By contrast, the OISP outright bans certain transactions involving electronic design automation software and tools for fabrication or advanced packaging. It also imposes notification requirements for transactions linked to the design, fabrication or packaging of integrated circuits.
At Annapurna Labs in Texas, engineers from Amazon are tackling one of the tech industry’s most ambitious moonshots: breaking Nvidia’s stronghold on the AI chip market.
At Annapurna Labs in Texas, engineers from Amazon are tackling one of the tech industry’s most ambitious moonshots: breaking Nvidia’s stronghold on the AI chip market. © Getty Images
EU member states are merely encouraged to examine outbound investments made by investors based in the region and non-EU subsidiaries that receive funds from businesses in the bloc. The OISP, however, prohibits U.S. individuals and companies from engaging in transactions against the national interest or requires them to notify the authorities when they become aware of such transactions.
Both screening frameworks call for reviews of specific overseas transactions, including mergers and acquisitions, asset transfers, joint ventures, venture capital and greenfield investments.
Another significant difference lies in their geographical coverage. The Recommendation is country-neutral, though EU member states may prioritize investment reviews of nations based on their specific risk profiles. The OISP identifies mainland China, Hong Kong and Macau as major places of concern.
While the OISP is already operational, establishing the EU’s outbound investment screening systems per the Recommendation could take time. Member states must submit a progress report by July 15, 2025, and a comprehensive implementation report on the Recommendation and related risks by June 30, 2026.
The changing face of strategic threats
Outbound investment screening is poised to expand as Western companies continue large-scale overseas investments. For example, from 2013 to 2022, EU firms engaged in around 12,800 mergers and acquisitions in third countries, totaling 1.4 trillion euros, along with 26,000 venture capital transactions valued at 408 million euros.
Since the U.S. and the United Kingdom accounted for half of these transactions and 70 percent of their total value, the EU’s outbound screening will likely require more information and filings regarding the substantial volume of investments made in these allied states.
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Clearly, these countries are not seen as the main targets of European outbound screening. That said, emerging strategic differences between the Trump administration and Europe – particularly over Russia and China – could shift European screening to focus more on U.S. investments and vice versa. At the same time, growing fears about China’s technological progress following the emergence of DeepSeek’s AI may prompt the EU to direct its screening measures more specifically on Chinese supply chains in the future.
Although the U.S. and EU screening regimes currently focus on just three strategic technology sectors, their scope will likely expand to cover more areas. This will come with stricter scrutiny, new notification requirements and liabilities for individuals and businesses.
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Scenarios
Most likely: Outbound investment screening will tighten
Western governments increasingly fear that Chinese companies and other potential threats could influence critical supply chains, posing risks to national security. This concern spiked during the Covid-19 pandemic when China-based supply chains became a major issue.
It is also acknowledged that China represents a different kind of adversary compared to those the West has faced in the past, such as the Soviet Union or smaller rivals like Iran. For instance, Western firms engage extensively in joint ventures with Chinese business partners, a practice absent with the Soviet Union. This integration of Western and Chinese economies has resulted in a complex set of issues that require unique policy tools and distinct dynamics in their application.
Additionally, the West’s market-based economies rely on private firms to make their own decisions regarding the structure of their supply chains. Hence, governments must use indirect methods, such as legislative tools, to enhance the resilience of critical supply chains against manipulation by strategic rivals.
Policymakers now recognize that they cannot depend entirely on private sector companies to prioritize national security interests in their decision-making. Tougher legislation on outward investment screening will address the growing fragility of supply chains. This may require Western governments to decide what is permissible in establishing an overseas supply chain in China and other countries with governments closely linked to Beijing.
There is also a broader issue regarding how much visibility Western governments have over their supply chains. Future laws are expected to emphasize the importance of collecting data on intra-firm trade, which is often opaque. Better visibility through this data collection could help strengthen supply chains by allowing governments to allocate resources more effectively in critical sectors.
As a result, new legislative tools are likely to be developed to monitor and probe supply chain complexities. Additionally, Western governments may more directly intervene to address the root issues tied to vulnerable or deteriorating supply chains that threaten national security.
Less likely: Investment screening shifts to the private sector
The West’s prosperity and security have long rested on an open economic environment. The free-market approach is a key focus of the Trump administration, which aims to deregulate the U.S. economy to attract domestic and foreign investment. Yet, this strategy includes a mercantilist element at the border, as seen in its use of tariffs.
Increasing tariffs at the border may lead to American and foreign companies preferring to invest in President Trump’s promise of a more deregulated U.S. economy. Therefore, the global strategic semiconductor industry may be more inclined to establish operations within the U.S., as shown by Taiwan Semiconductor Manufacturing Company’s recent announcement of an additional $100 billion investment there.
The same may also apply to Europe, where the challenge will be to roll back burdensome green energy and climate regulations, allowing private sector decision-makers greater control over their business strategies.
These efforts to wrest decision-making away from the government and back to private enterprise may also manifest itself in how outbound investments are undertaken when creating international supply chains.
In the U.S., where economic competitiveness is culturally ingrained, advocating for a unilateral outbound investment screening regime – where the government prevents the private sector from freely investing overseas – undermines this competitive model. This is particularly true as U.S. businesses recognize that not all technology and talent come from within the country. Nor are all the best innovations coming from the U.S., as exemplified by DeepSeek’s recent release of a more affordable and energy-efficient AI model.
In fact, many U.S. companies now partner globally to drive technological breakthroughs. Yet, a system imposing bureaucratic judgments on critical or emerging technologies could imperil U.S. competitiveness – and even national security by implication – whether or not they do business in China.
There is also the question of whether regulators are best equipped to determine what constitutes foundational or emerging technology that should be subject to outbound screening. Take the U.S. Bureau of Industry and Security (BIS), which oversees export controls on technological goods. It has not fully defined emerging and foundational technology to the satisfaction of high-tech sector observers.
It was only in January 2025 that BIS issued a framework imposing new licensing requirements on AI and advanced integrated circuits. This late framework indicates that the government agency lags in a rapidly evolving strategic technology sector – an area better suited for private sector regulation, the true source of innovation.
Regarding national security, should regulators even say they do not trust American companies to act in the interest of the country as an argument for the government to have control over their decision-making? The situation becomes particularly complicated when innovation and technology evolve rapidly, leading to government intervention and scrutiny over critical supply chains. This may ultimately hinder U.S. innovation tied to overseas supply chains.
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