America's Latest National Security Threat - American Seniors

It's bad enough that they're old and needy. Now they're a damned threat to the nation. Seniors are cashing in their chips and foreign investors are moving in to buy what's for sale.

Leading economists, such as the Wharton School’s Jeremy Siegel, predict that, just as American baby boomers are increasingly selling stock in U.S. companies to fund their retirement, foreign investors from emerging markets such as China and India are increasingly buying those stocks. That’s because, almost exactly as many Americans are cashing out, these foreigners are buying in, a trend reflected in their countries’ significantly higher domestic growth rates and per capita savings rates. Siegel and others predict that, as a result, by the middle of this century many U.S. companies will be majority-owned by non-American investors. These economists thus predict that majority ownership of key U.S. businesses—as well as leading European and Japanese businesses—will be in the hands of foreigners from emerging markets. 

This is a very different kind of shift to foreign ownership from what the CFIUS review process has focused on for decades or would be prepared to tackle even under the proposed reforms. Thousands—even millions—of different foreign individuals, corporate entities, and investment funds will own small stakes in U.S. companies, with each individual investor’s holdings staying below the threshold that typically triggers U.S. government scrutiny through the CFIUS process (or otherwise). In turn, these many slow, small asset transfers do not raise the same types of national security concerns implicated in multimillion- or multibillion-dollar investments in (or purchases of) U.S. businesses by foreign entities of the type that made headlines recently when President Donald Trump blocked a proposed foreign purchase of the U.S. tech company Qualcomm. Those concerns generally include threats to the integrity of critical infrastructure, of corporate intellectual property, of military capabilities and readiness, and, ultimately, of U.S. technological advantages.

If (more likely, when) a majority of shareholders of Apple, Google, and IBM are non-U.S. people or entities, the composition, vision, and strategic direction of those companies could well change. Such companies, for example, might be more willing to enter into partnerships or joint ventures with dubious foreign businesses; pursue additional sales or expansion into foreign markets, raising national security concerns; or enter into strategic relationships with hostile foreign governments. Those companies also might be more aggressive in challenging lawful U.S. processes such as criminal or foreign intelligence-related subpoenas served on them by the U.S. government, and they might be more willing to make security or other concessions to foreign governments, including even greater openness to the intrusive requirementsof Beijing and others. And shareholder voting—from the election of board members to proposed corporate changes, including the fundamental alteration of corporate structure and mission—could yield results at odds with U.S. strategic interests. That could even happen not because of deliberate foreign influence over such decisions but simply because of the different perspectives and priorities of foreign, as opposed to U.S., shareholders. Indeed, one of us has written previously about the national security implications of leading U.S. tech companies’ increasingly (and now overwhelmingly) non-U.S. user base. Non-U.S. shareholders pose yet another complex challenge.