C2026

Skip to content

Subscribe 

Foreign Affairs

Subscribe 

Foreign Affairs

The Cost of Keeping China Out How Washington’s Fear of Chinese Investment Hurts American Competitiveness Peter Cowhey and Meg Rithmire August 17, 2026 U.S. President Donald Trump and Chinese President Xi Jinping in Beijing, May 2026 U.S. President Donald Trump and Chinese President Xi Jinping in Beijing, May 2026 Kenny Holston / Reuters

Peter Cowhey is Qualcomm Professor of Technology Policy Emeritus at the School of Global Policy and Strategy at the University of California, San Diego.

Meg Rithmire is James E. Robison Professor in the Business, Government, and International Economy Unit at Harvard Business School.

More by Peter Cowhey
More by Meg Rithmire 

Print Save

Travelers returning from China often report having seen the future. The country’s advances in frontier commercial technologies are visible in the robots that make and serve food in restaurants; the drones that deliver food and medicine; and the deployment of industrial and humanoid robots on factory floors. Even outside China, most of the world is now familiar with Chinese electric vehicles that are as affordable as they are sleek, with massage chairs and swappable batteries winning over passengers from London to Santiago.

Most Americans, however, are unaware of this future. Chinese EVs are effectively absent from the U.S. market, blocked by 250 percent tariffs and broad national security restrictions. And a bipartisan fear has prevented many frontier Chinese technologies, including drones and robots, from reaching U.S. shores. Apart from a handful of products, mostly consumer electronics, the U.S. market is largely oblivious to the fruits of China’s advanced manufacturing ecosystem.

The United States has its reasons for this blind spot. As early as the second Obama administration, if not before, it became clear that China was not playing fairly in business. Successive administrations have used a slew of trade remedies and official complaints to the World Trade Organization to fight back against unfair subsidies, and rulings by the federal Committee on Foreign Investment in the United States (CFIUS) have tried to prevent sensitive U.S. technologies from falling into the hands of Chinese actors. Since 2017, Chinese firms have also found themselves the targets of heightened security reviews.

Today, many actors in Washington think the United States should do even more to disengage from Chinese business. Members of Congress are pressuring American pharmaceutical companies to discontinue clinical trials in China, for instance, citing concerns that China’s research and development ecosystem has ties to the People’s Liberation Army. Others are proposing legislation to ban Chinese ownership of U.S. farmland, ostensibly to protect the U.S. food supply and critical infrastructure. Subscribe to Foreign Affairs This Week

Our editors’ top picks, delivered free to your inbox every Friday.

• Note that when you provide your email address, the Foreign Affairs Privacy Policy and Terms of Use will apply to your newsletter subscription.

Calling out China’s gains as ill gotten is frequently justified. Defensive responses also feel satisfying—as if the United States could level the playing field and instantly create effective American competitors by locking out Chinese firms that have scaled up and advanced unfairly. Unfortunately, this approach does little to advance American economic and security interests. Chinese firms are no longer merely efficient producers or copycats; in terms of knowledge and production capability, they are increasingly global leaders in many industries. Denying them access to the American market harms U.S. competitiveness, hinders U.S. efforts to build industrial capacity at home, and ensures that U.S. industry and consumers remain far from the frontier of technological advancement.

Instead, Americans must reckon honestly with the scale of China’s industrial and technological progress. The United States need not embrace Chinese imports and investment unconditionally, but it must recognize that its own long-term competitiveness depends on its companies and consumers being exposed to the cutting edge. U.S. President Donald Trump’s vague proposal for a joint “Board of Investment” with China, announced after his May summit with Chinese leader Xi Jinping, seemed to suggest Washington was moving in this direction. But nothing concrete has come from the board, and managing investment flows at the leader-to-leader level is certainly not efficient.

A more mature strategy of selective openness is possible. The United States should permit carefully structured Chinese investment in areas in which the economic and technological benefits are substantial while imposing stringent safeguards to mitigate security risks. Building the political confidence to sustain a selectively open market for Chinese direct investments requires skilled, transparent, and thorough regulatory oversight. With such an approach, Washington can penalize some imports but still permit access to the U.S. market through investments in American production facilities. There is a clear precedent for this strategy. It is, in fact, exactly what China did to Western companies for decades. TROJAN HORSES?

Since the 1990s, China has required global investors to operate under conditions that are designed to advance its national development goals. When foreign automakers or cellphone manufacturers wanted to take advantage of China’s cheap labor force, Beijing required that the firms use local supply chains, transfer technology, share management with Chinese firms, provide workforce training, and offer security protections (for example, localizing data and submitting to government oversight). The goal was always to ensure that foreign companies invested in ways that fostered a Chinese ecosystem. As Jeffrey Immelt, then chief executive of GE, said of China in 2010, “I am not sure that, in the end, they want any of us to win, or any of us to be successful.”

Indeed, GE spent decades accessing the Chinese market through joint ventures that eventually seeded Chinese competitors. China is now home to both private and state-owned companies such as Midea, Haier, and State Grid that rose up to compete with GE in everything from home appliances to power generation and transmission. Many are even taking their strategies global—including to the United States.

Chinese firms in frontier sectors like EVs, robotics, and life sciences especially want access to the vast U.S. consumer market. These firms face narrow profit margins at best at home—a result of the overcapacity and “involution” that came from excessive state investment and hypercompetition in specific sectors. If companies want to survive, they need foreign markets to prosper, and the United States remains the largest consumer market in the world. Companies such as the electronics and EV conglomerate Xiaomi and the battery maker CATL have publicly pined for U.S. market access, signaling that they would make significant investments in the United States in exchange for access. So far, however, the U.S. government has blocked such investments because of security concerns. An array of technologies are imagined to be modern Trojan horses. EVs, for instance, are not simply cars; they are traveling networks of sensors, software, computers, batteries, and communications systems capable of collecting data, mapping cities and infrastructure, and integrating with national grids. The fears range from reasonable (Chinese-connected vehicles mapping U.S. critical infrastructure) to far-fetched (remote control and even weaponization of vehicles on the road).

These realities require vigilance. But the answer is not to reject all Chinese investment unless it poses zero security concerns. Such an approach risks isolating the United States economically. If American firms don’t have to compete against the global leaders, they will increasingly sell things only to Americans. The United States will end up an island of legacy firms and practices, and the isolation will weaken American dynamism, reduce competitiveness, and erode broader economic security. A SMARTER GATEKEEPING

Instead, the United States can adopt strategic terms for investment, as China did. Trump’s Board of Investment remains something of a mystery—a talking point only, so far—but it is not difficult to imagine it drawing from the many regulatory tools in Washington to create and sustain an overall investment structure for Chinese companies. In fact, imposing such a regime should be fairly simple for Washington because it already has much of the institutional sophistication to implement such terms. In addition to CFIUS, the United States has a substantial arsenal of tools to monitor, selectively ban, and condition Chinese investments. A host of regulatory agencies, including the Food and Drug Administration, the Commerce Department’s Bureau of Industry and Security, and the Federal Communications Commission, can make targeted rules for firms in specific sectors, like life sciences, networked EVs, and robotics. Rules about data localization, required local partnerships, and supply chain diversification can help ensure that Chinese supply chains are not just imported into U.S. production.

Washington can and should upgrade these tools to shape Chinese investment on its terms. CFIUS, for example, imagines the most far-fetched risk scenarios and judges whether they can be mitigated. The interagency committee’s approvals for sensitive investments and acquisitions frequently involve “national security agreements”—special corporate governance arrangements devised collaboratively between firms and CFIUS personnel with provisions for cybersecurity protection, data management, and continuous monitoring of firm decisions by national security specialists appointed to boards.

This is a good beginning for a ro