Co-authored with Jason C. Chipman, Rachel Dober, Jeremy D. Dresner, Matthew F. Ferraro, Barry J. Hurewitz, Rob Lehman, Lauren Mandell and David J. Ross

With the onset of the COVID-19 pandemic and the serious supply chain vulnerabilities it has exposed, we are seeing a seismic shift in US policy and regulation, from stepped-up measures to protect US technology, intellectual property and data from theft or acquisition by China to a new national imperative to end US dependence on China for strategically important materials, components and products. In this paper, we provide a comprehensive discussion of the security -driven, China-focused policy and regulatory developments affecting private sector businesses, with particular attention to recent changes addressing US supply chain concerns.

Introduction and Summary

In our January 2019 paper, "Regulatory Efforts to Protect US Innovation From China,"1 we described a broad and sustained campaign of the US government to block China's access to advanced US technologies and counter its efforts to compromise sensitive government information and defense systems. In the past year and a half, that campaign has grown so much in scope and intensity that it has become a distinct phenomenon: a determined, widescale and bipartisan movement to revisit the globalization of supply chains integral to the free trade regime that has prevailed, with the support of both US political parties, for decades, seeking to reverse in significant respects the integration of the American and Chinese economies.

Beyond increasingly robust efforts to protect existing US advantages in technology, the government is now trying to regain what the United States has lost to China-critical production capability-and otherwise ensure that the country will have or can get what it needs in the future without relying on China-controlled supply chains. The intended result has been described as an economic "decoupling" from China and the "onshoring" of industries to eliminate vulnerability to single points of failure and provide reliable domestic (or at least friendly) sources of supply.2

The effects of this decoupling from China and onshoring of supply chains will reach a wide range of economic sectors, from telecommunications, pharmaceuticals and medical devices to microprocessors, rare earth minerals and permanent magnets. While these efforts are motivated largely by concerns about China as an economic rival and potential military adversary, they are not necessarily limited to China, as the United States may compete with allied or other countries where national interests require onshoring domestic production (e.g., of vaccines and ventilators) and, at the same time, may look to allies and friends as reliable sources of supply where diversifying away from China is deemed sufficient. Finally, this is not a short-lived phenomenon. Like protecting advanced technologies, reversing supply chain dependence on China has been embraced by both political parties and, with differences in emphasis and rhetoric, may be expected to continue apace whatever the outcome of the upcoming election.

In this paper, we discuss key US policy and regulatory developments and the consequences for private sector businesses, focusing on potential opportunities, as well as regulatory and enforcement risks. The discussion proceeds in seven parts, as highlighted below:

1. Legislation and Federal Funding to Promote Onshoring

The CARES Act and authority under the Defense Production Act delegated to the US International Development Finance Corporation present opportunities for businesses to obtain federal funding for the purpose of building/rebuilding industrial base capabilities/supply chains in the United States.

Additional opportunities may be presented by provisions addressing US dependence on foreign manufacturing in the next National Defense Authorization Act (for FY 2021) and in proposed follow-on COVID-19 relief legislation-some industry specific (e.g., medical supplies, semiconductors, rare earth minerals).

2. CFIUS Review of Foreign Direct Investment to Impede Offshoring

Through reform legislation enacted in 2018, Congress greatly expanded the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). Member agencies are, in turn, dramatically increasing the number of personnel devoted to reviewing transactions notified to CFIUS and investigating deals of national security interest that the parties did not notify.

Nearly all corporate transactions with foreign acquirors or investors now merit some level of CFIUS risk analysis to determine whether a deal triggers a mandatory filing or presents a risk of CFIUS attention. And China deals, especially those involving the health sector, advanced technology or information about US persons, are increasingly likely to be reviewed by CFIUS before or after closing.


1 Jamie Gorelick and Stephen Preston, Regulatory Efforts to Protect US Innovation From China: Implications for Private Sector Businesses, WILMERHALE CLIENT ALERT (Jan. 10, 2019),

2 "Onshoring" is used broadly to refer to the movement back to the United States of production capability that has been relocated overseas (also known as "reshoring") or otherwise building domestic production capability that has atrophied in the United States and/or developed abroad.

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