With the coronavirus pandemic and the financial crisis that has come with it, the Pentagon is afraid of foreigners investing in and taking control of US defense companies. Pentagon officials are ready to take protective measures against what they call “adversarial capital.”
Ellen Lord, the defense undersecretary for acquisition and sustainment, spoke at a news conference on Wednesday. Lord said that it “is critically important that we understand that during the crisis, the [defense-industrial base] is vulnerable to adversarial capital, so we need to ensure that companies can stay in business without losing their technology.”
What Lord and other officials are afraid of is smaller defense firms hit hard by the financial crisis accepting foreign money in exchange for technology sharing. When it comes to technology sharing and intellectual property, Washington sees China as the biggest threat. President Trump has used many protectionist measures against China in his trade war, and it looks like the Pentagon is ready to use some of their own.
The Pentagon can use the Committee on Foreign Investments in the US (CFIUS) to block foreign investments in US companies on the grounds of national security. The CFIUS was established in 1975 to block the foreign takeover of entire US firms if it was deemed a threat to national security or put the US at a competitive disadvantage. But a 2018 bill signed by President Trump gave the CFIUS the power to block any foreign investment that gives the investor access to nonpublic information or puts the investor on the board of directors.
Last year, the Pentagon launched the Trusted Capital Market place in an attempt to connect so-called “patriotic investors” with smaller defense companies. “Patriotic investors” basically means anybody with capital who does not have ties to US adversaries like China, Russia, or Iran. The Trusted Capital Market’s first endeavor was to prevent Chinese companies from investing in small drone manufacturing.