Policy and regulatory shifts could transform global trade, from intensifying scrutiny on foreign investment to the unprecedented scale of new tariffs.
Topics discussed:
- OISP puts onus on US investors for monitoring new restrictions on Chinese tech investment
- DOJ’s new data rule targets countries of concern
- Why FCPA matters even if enforcement is deprioritized
- What’s unique about Trump’s tariffs
Listen to audio here.
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Transcript
The following transcript of this discussion was edited for clarity.
Richard Matheny: My name is Rich Matheny, and I cochair Goodwin’s Global Trade practice. Today my colleagues and I will discuss recent developments in the US trade regulatory space.
We’re almost 100 days into the new administration, which stepped into a dynamic US trade regulatory environment, including new regimes that were formed under the prior administration.
This includes the Outbound Investment Security Program (OISP), which took effect on January 2; a new Department of Justice rule targeting China’s access to the data of US citizens, which took effect on April 8; scores of changes to existing US regulatory regimes, many of which are designed to counter China’s technology advancements; and increasing sanctions and export control restrictions designed to counter Russia’s second invasion of Ukraine.
The Trump administration issued its America First Investment Policy, which is a memorandum that gives some hints about where the administration is headed.
I’m pleased to introduce my partner Justin Pierce, who works on these topics. Justin, let’s start with OISP. What is it, and what has been the impact of this new regime?
Justin Pierce: At its core, OISP either prohibits or requires a notification for US investment into China for three technology sectors: semiconductors, quantum computing, and AI systems.
There’s a China nexus on one side and an activities nexus on the other, which is important to remember when thinking about what is subject to jurisdiction under the rule and what can be excluded.
OISP was billed to have a narrow regulatory focus, but this could change, especially for activities. We’ve seen some of that in the America First Investment Policy, which floats an expansion around biotech, hypersonics, aerospace, and a few other areas. So we’ll have to stay tuned to see if what started small becomes larger and even more difficult to diligence or police.
You asked about the impact. We’ve long known that the intersection of China and sensitive technologies would raise national security concerns, and investors have paid attention to this for some time. What’s new is that the compliance burden falls on the US investor, who is engaging in the outbound activity. They now are responsible for where the capital and resources and other know-how is going. That’s something different to think about — and for that reason, we’re seeing new representations and new covenants, both on the investor and company sides.
There are also diligence questions that are surfacing about activities that are going on in China. That’s something new for companies to look at, too. The diligence process is becoming more cumbersome, which is at odds with the investment goals of both parties.
Another feature, which is probably not too surprising, is there’s a reluctance to engage in notifiable transactions. Even if we start off thinking that the prohibitions are somewhat narrow, we’re seeing more and more investments that are being restricted by the parties’ own election. So the impact is real, but the industry is still deciding what’s going to be the standard approach.
Richard Matheny: Let’s turn our attention to the Department of Justice data rule. What can you tell us about that new rule?
Justin Pierce: This one has been a little bit quieter. And I think that’s in part because there was a delay between the final rule and the implementation date in April 2025. At its core, there’s either a prohibition or a restriction on investments, vendor agreements, employment agreements, or other kinds of commercial transactions that involve potential access to what’s called bulk US sensitive personal data or government-related data, by a country of concern. That generally means China or Hong Kong, but it also includes Russia and some of the other sanctioned countries.
As in the OISP analysis, we have a country nexus and an activity nexus, but the activity is in the form of data for this rule.
If there is a covered data transaction, there’s an escape valve, and it’s a mechanism for security requirements. That looks kind of like a forced mitigation agreement, where the parties would agree — really, it’s the US business that implements the plan — to protect the data and keep it from the foreign adversary.
The rule introduces a CFIUS-like mechanism as we think about the investment analysis but also a more traditional privacy or cyber set of considerations for employees and vendors that a company may be engaged with. We’re seeing companies and advisers taking a cross-functional approach of bringing together experts that are in different verticals. It’s going to be partially a coordination exercise for companies to figure out how best to comply with the rule and navigate it going forward. And whether from the investment side or the more operational side, the cybersecurity frameworks are going to be really important.
Rich, these are new areas of the law that have been on the books now for a couple of months. But there have been changes to the existing laws that are in place, such as the Foreign Corrupt Practices Act (FCPA). How are you thinking about shifting enforcement policies or other changes?
Richard Matheny: It is true that the Trump administration has signaled its intention not to enforce the FCPA in many respects. Clients are naturally wondering if this is something that they should still pay attention to. They definitely should. I don’t think that this announced policy change is going to have much effect on the ground, and there are a few reasons for that.
One is that the law is still in the books. It has, typically, a five-year limitation period, and Trump has a four-year term. Any activity that occurs during that term would still be subject to enforcement.
Separately, many commitments not to engage in corrupt activities are commitments made to lenders and investors, other private parties, or private actors, much like in the sanctions space. Those are contractual agreements that are going to endure notwithstanding a diminished enforcement context.
Additionally, there are many non-US laws to which our clients are subject. They create a basis for jurisdiction that’s really not within the Trump administration’s ability to affect. I think at the margins there are some enforcement actions that might be taken down, but by and large, I would say there’s not going to be — there should not be — much change in the approach to those anti-corruption laws.
Justin, let me ask you just to wrap up this part of the conversation. Can you offer three things you might be saying to clients who are confronting this dynamic regulatory environment?
Justin Pierce: Probably number one is that a company should be mindful of any dealings that they have with what we may call countries of concern. This is a mash-up of several different regulatory regimes, but I would put China, Russia, Belarus, Ukraine, Venezuela, and of course Cuba, Iran, North Korea, and Syria, all within that category. If you have a transaction or investment or other kind of activity with one of those countries, you should look at it much more closely.
Second, and it’s related, is to know who’s on the cap table, and to anticipate increased investment friction under these regimes. I think that’s going to be of increasing importance.
The third category of things to look out for is that these laws are dynamic, they’re changing. It’s difficult to stay up to date. We expect that there will be changes, and it’ll be important for folks responsible at the company to keep an eye on these developments and stay informed.
Richard Matheny: One topic that is top of mind for nearly everyone is increasing tariffs. We’ve seen unprecedented market volatility that is associated with imposition of those tariffs. Some have referred to tariffs as the new sanctions, given that they’re used to influence the behavior even of our allies in ways that, historically, sanctions have been used by the federal government.
Nate, what makes the Trump tariffs unique?
Nate Cunningham: Well, a lot really makes these tariffs unique, mainly their scope and scale. They are historically high in terms of the actual tariff amount that’s being assessed. And except for Canadian and Mexican products, these tariffs cover all products, with only a few narrow exceptions.
The speed at which they’ve been implemented is unprecedented, and there’s been hardly any notice provided to the public in advance. And a lot of these tariffs also have been imposed under national emergency laws, which is a novel use of these authorities.
Richard Matheny: What would you say would be the impact of these tariffs?
Nate Cunningham: It really depends on the product, but there are some broad-based tariffs that amount to an additional tax on imports of about 10% to 50% or more. Again, that depends on the product and the country of origin of the item.
It’ll take some time for supply chains to adjust to these pretty major changes, but the primary impact should be a higher cost for imported products.
Richard Matheny: Are there ways that clients can mitigate or reduce their exposure to these new tariffs?
Nate Cunningham: The stakes clearly are much higher now from a commercial perspective, and the Trump administration has signaled aggressive enforcement ahead. Parties can examine their contracts and see who bears the burden for paying taxes — frequently tariffs are encompassed in the definition of taxes. Contracts between parties can act as a way shift to the burden of paying tariffs. There can also be implementation and interpretation questions, so parties are definitely well-advised to make sure they understand all of their contractual obligations in this respect.
Additionally, all the traditional tools of customs analysis remain relevant — in fact, they are probably more important than ever. So classification of the item, determining the correct tariff code to apply, ensuring that you have the lowest possible baseline, most-favored-nation tariff applicable. The tariffs that have been announced recently are in addition to that baseline, most-favored-nation tariff.
It's important to conduct a country of origin analysis to make sure that the correct country's tariff rate is being applied to your product. And accurate valuation is critical, because the amount assessed for these tariffs depends almost entirely on the product's valuation.
Richard Matheny: Great. That’s what we hoped to cover today. Thank you for your time and attention, and we look forward to working with you on these trade regulatory topics.
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