The Trump administration’s commitment to reduce red tape and cut corporate tax rates has been well received by investors. The S&P 500 has hit 61 record highs and climbed 21.3 percent since President Trump was elected. Consumer confidence also seems buoyed by his pro-investment agenda, hitting a 17-year high according to the Conference Board Consumer Confidence Index in data collected through Oct. 18.
With the House passing pro-growth tax reform this year and the Senate soon to follow, America is poised to see this confidence translated into truly strong GDP growth. Instead of companies leaving the U.S., we’re going to become a magnet for foreign companies.
Even now foreign companies are eager to invest here, despite the political uncertainty that still exists in Washington. Some of the larger deals in the works include the takeover of GE’s Industrial Solutions group by ABB in Switzerland, electric power generator Calpine by the Canadian Pension Fund, Bayer’s acquisition of plant biotech company Monsanto, and utility services firm U.S. Infrastructure Corporation by Partners Group Holding, also based in Switzerland.
{mosads}But one area that is worrisome to proponents of growth and free markets is the backlog of deals at both the Antitrust Division of the Department of Justice and at the Committee for Foreign Investment in the U.S., also known as CFIUS.
CFIUS is supposed to be strictly about national security. It is not supposed to be an instrument of protectionism or an anti-trust regulatory body.
But unfortunately, CFIUS appears to have become a black box that gums up deals well beyond those involving sensitive questions around state-owned Chinese companies. Deals involving privately held companies in allied countries that have nothing to do with national security are being slow-walked.
Mergers and acquisitions are facing unjustifiable delays that run counter to the deregulatory approach of the Trump administration. Best guesses put the number of applications at CFIUS that are beyond the expected review time at more than 100 — likely more than half of all active applications.
Experts trying to shepherd companies through the process are pointing to various reasons for this, including a shortage of staffers and the divided attention of the president’s own top people in the agencies who participate in the committee.
But it increasingly looks like some CFIUS participants are using the behind-closed-doors process as a deliberate way to block or slow down acquisitions that are not risks to national security, as defined in law, but that they personally don’t like.
Far from helping, two bills led by Sen. Charles Grassley (R-Iowa) would make the process even more convoluted and burdensome. The first, which he introduced with Sen. Debbie Stabenow (D-Mich.), would add the USDA to the committee. More cooks in the CFIUS kitchen is not the answer. The Treasury Department runs the committee and can reach out to any agency that has expertise in the related industry. But giving USDA a permanent seat creates the potential for national security threats to be found behind every barn or grain silo.
The second bill, cosponsored by Grassley and Sen. Sherrod Brown (D-Ohio), would create a separate process for deals as small as $50 million to be run by the Department of Commerce. While intended to take only 15 days, it does not prohibit the government from asking the applicant to withdraw and re-file, restarting the clock; a tried and true trick of bureaucrats everywhere who don’t want to make a decision.
The Grassley-Brown bill also lists “any other factors the secretary considers appropriate” be considered in reviewing a deal. Would the Swiss acquisitions be allowed given the relevance of the deals to our national electrical grid? Or because of the secretive Swiss laws for banking and corporate ownership? Should the Calpine deal be blocked because the Canadian government controls the pension fund? Should Bayer be prevented from buying Monsanto because EU laws are more strict on GMOs than the U.S. and a future secretary of Commerce might believe the German government would tell the company to stop selling them? What a regulatory nightmare.
The solution is not to expand the regulatory scope of CIFIUS in law to match what increasingly is the actual process, and it’s definitely not to create a new regulatory control on mergers and acquisitions run by the Department of Commerce. How many times do we have to learn that government regulators shouldn’t make these kinds of decisions? Only the market can.
Congress should instead urge the Treasury to focus CFIUS only on acquisitions by nations that present genuine national security concerns, and their state-owned enterprises, as well as those from countries allied with them. Stick to the intent of CFIUS. In those cases where there are legitimate security-based concerns, they should be handled immediately. At the same time, as part of its role in CFIUS, the State Department should support deals with companies in allied countries with open markets such as the European members of NATO. This would get CFIUS on board with the Trump deregulatory agenda and allow it to stop hampering the economic growth the administration is trying to unleash.
Grover Norquist is the president of Americans for Tax Reform, a non-profit aimed at supporting limited government.