Cross-Border M&A in the Age of Geopolitics: National Security Review of Foreign Investments.
Introduction
If one government refuses to back a multi-billion-dollar acquisition by another, and states it is a “threat to national security,” few question the real one. Is this real defense or the latest, easiest barrier to economic protectionism? The cross-border M&A logic was once “Capital goes where it can get the best return, no matter the border. That was the world that is slowly disappearing. A new hierarchy now prevails in which, instead of price and synergies, a deal’s success relies more on who is on the buyer’s side and the politics between two governments. National security review, a once tight security filter for defence and infrastructure, has expanded to become a broad-based filter for AI, data and critical minerals. Well, the question the piece that I’m dealing with right now has to ask is, does that expansion actually serve the nations? Or is it just a decent word to say “no”?
Expansion of NSR: quantitative and qualitative
National security reviews (hereinafter as NSR) for cross-border takeovers are not new. The CFIUS (Committee on foreign investment in the United States) from 1975, is empowered to assess the impacts of foreign investments on the national security of the US to protect it from foreign threats. However, what made it concerning was the expanding scope of ‘security’ and its spread in various jurisdictions. Therefore, there’s a need for discourse.
The interest paradigm in NSR is not limited to the specific transaction, rather it expands to the country as a whole. This is because corporations have been enmeshed in the economy such that their impacts reach beyond stakeholders. The world has started to adopt NSR rapidly. The European Commission adopted a recommendation on critical technology areas in 2023, for the EU’s economic security and identified AI as one. In the UK, there was no separate framework for NSR until the Enterprise Act 2002 was amended to empower the government to intervene. Currently, the NSIA requires approval for acquisitions of shares if they surpass a certain percentage in sensitive sectors like defence, infrastructure or crucial technology.
However, along with the quantitative expansion, there has also been a qualitative expansion. What constitutes security is specific to the particular laws of a country; there is no standard definition. Earlier, the security review was restricted to critical sectors such as defence; however, AI and Personal data are increasingly considered critical. The scope has been expanded to also include non-controlling investments. In the US, CFIUS’s jurisdiction also expands to investments that provide access to important information such as sensitive personal data. This brings us to why such expansion.
This has been mainly caused by geopolitical dynamics, i.e. rivalry between China and the West, economic uncertainties, and the rise in Chinese investment. “U.S. concerns about the rise of China as a technological power and, more specifically, about whether China is unfairly using investments in sensitive U.S. technologies to facilitate that rise.” What proliferates it is China’s variant of state capitalism, which mandates Chinese corporations to share information with the state. Prima facie, the qualitative expansion looks necessary and appropriate, but the problem lies deep.
Impact of rising NSR
NSR has transformed the playing field for all the stakeholders. Very often, legislators use NSR to protect domestic industries and companies from foreign acquisitions, and similarly, the management may invoke a screening mechanism to prevent a takeover, using it as a defensive measure. This level of government intervention creates a phenomenon called black box regulatory style. The government has no obligation to disclose its reasons for the conclusion, and this lack of transparency may create huge levels of uncertainty, resulting in a chilling effect, and this might also suggest that many transactions may fail due to informal impediments in the process. In short, this can cause “the lack of predictability in the interpretation of substantive law, the lack of procedural certainty, and the lack of transparency in practice.” Even if the transaction successfully takes place, the costs involved in undergoing the screening mechanism and the delay may act as a dampener. Additionally, vague NSR mechanisms erode the traditional concept of contract. Dealmakers spend on contract making to avoid uncertain future costs as much as possible. But with an uncertain NSR mechanism, contract making does not help. The authors further explore the debate around NSR & economic protectionism and anticipate the future ahead.
National Security or Economic Protectionism? The Emerging Debate
The most often asked question in cross-border M&A governance is rather simple: When a state resists a foreign acquisition, is it really about security, or playing geopolitical politics as a form of trade insurance?
The structural problem is the very elastic nature of “national security. The term was intentionally left undefined even in the basic Exon-Florio Amendment of 1988. This has since been used in a more sophisticated manner. The Copenhagen School’s securitization theory by Buzan, Waver and de Wilde cautions exactly this: an issue does not qualify as a security issue because of real threat but simply because the authorities are able to declare it as such. In this sense, cross-border M&A review is structurally at risk of exactly this shift, as the discretion and opacity of most screening systems gives them the capacity to shift objectives of industrial policy onto a seemingly security-based exercise.
There is a lesson to be learnt from history. In an attempt to acquire Unocal, the Chinese state-owned CNOOC made an all-cash bid of USD 18.5 billion in 2005, which was met with opposition from Congress, which raised concerns over security concerns, even though a Department of Energy security assessment found no real threat. The agreement was politically unworkable and Unocal was sold to Chevron. Protectionism’s economic costs were starkly illustrated at the same time in a subsequent study carried out by researchers in the Journal of Corporate Finance that estimated the political opposition cost almost USD 59 billion in market value. It’s happened before: In 2016, a German government veto prevented investing firm Fujian Grand Chip from buying Aixtron, the world’s third-largest maker of semiconductor equipment, weeks before the deal was to close, and then in 2018, CFIUS blocked Broadcom’s USD 117 billion hostile takeover of Qualcomm, the world’s largest semiconductor maker, based on fears of technological dominance by China through its subsidiary.
The doctrinal shift that enabled this expansion accelerated with FIRRMA (2018) and Biden’s 2022 Executive Order, which formally instructed CFIUS to weigh supply chain resilience and technological leadership when reviewing foreign acquisitions effectively merging economic competitiveness with security review. The operative doctrine “economic security is national security” has since been adopted by the EU, Japan, and the G7 collectively, producing a global environment in which virtually any strategically significant cross-border deal is now subject to security-framed scrutiny.
Internationally, WTO Article XXI GATT offers little discipline. Its national security exception, if “wholly self-judging” as the US argues, renders it a blank cheque for protectionist deal-blocking. The EU’s FDI Screening Regulation 2019/452 l applies the undefined concepts of “security” and “public order” flexibility that McDonagh (Springer, 2023) argues is ripe for protectionist abuse, most visibly in France’s 2021 blocking of Couche-Tard’s EUR 20 billion acquisition bid for Carrefour on barely articulated sovereign grounds.
The most precise theoretical framework is provided by Farrell and Newman’s “weaponized interdependence” (International Security, 2019) that emphasizes that states that control critical economic nodes (such as semiconductors, data infrastructure, energy) have the ability to weaponize them. In these industries, cross-border M&A is, in fact, a race for node-adjacency – and each M&A transaction is a geopolitical event. Where national champions fit in and how one protects them is becoming an ambiguous scenario in “win-lose globalization,” as Mariotti (2024) puts it. Submitting the honest answer: The binary is false. Most modern M&A screening systems are used at the same time to serve as security and economic statecraft tools. The academic and policy mandate is not to blur this line but to leave both of these truths in tension and assert both of them with specificity, proportionality and transparency in each and every cross-border security rationale before this deal is dead.
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The Future of Cross-Border M&A in an Increasingly Geopolitical World
The death of cross-border M&A has been greatly exaggerated, but it is certainly in for a major transformation. The time of “geopolitically neutral” deal-making, when capital flowed toward the most productive use, regardless of whether its origin was foreign or domestic or whether its target was a sensitive or not-sensitive location, is gone. What’s taking its place is more discriminatory, more politically shaped, more structurally nuanced.
The statistics paint a revealing picture. UNCTAD’s World Investment Report 2025 confirmed that cross-border M&A was still lower than the average, indicating “a structural change towards domestic and near-shore investment strategies in face of increased policy risks, regulatory oversight, and world uncertainties.” While global FDI technically bounced back in 2025, reaching USD 1.6 trillion, the recovery was illusory and most of the rise was through “financial conduit economies,” warned UNCTAD. Geopolitical uncertainty and increased regulatory attention have directly impacted cross-border M&A transactions in developed economies, which decreased by 18% in the first half of 2025.
The biggest dealmaking transformation, however, is the increased use of “friend-shoring.” JPMorgan’s analysis has been able to document a big push into cross-border M&A that has been fairly centralized in geopolitically linked groups; the reason for this is because acquirers are choosing political reliability over economic efficiency choosing to put capital into allies instead of the cheapest or most capable counterparts. The World Bank and CEPR have empirically validated this, and in a recent study they find that geopolitical differences, as represented by the UN voting alignment, bloc membership and democratic governance indicators, now have a greater negative impact on foreign investment decisions than they did 10 years ago, using three sets of global FDI data for greenfield and brownfield (mergers and acquisitions) investments. According to the Harvard Growth Lab, the impact of widespread friend-shoring on global GDP could be as great as 4.6%.
For deal practitioners, the implications are immediate. Harvard Law School’s M&A review notes that cross-border mega-deals are increasingly targeting firms viewed as “national champions,” which directly exacerbates regulatory scrutiny and lengthens deal timelines. Deloitte’s 2025 M&A Trends survey of 1,500 professionals found that adaptability and geopolitical agility have become “core competencies” no longer optional attributes of deal teams but prerequisites for transaction survival.
Predictable areas are semiconductors and artificial intelligence, critical minerals and data infrastructure. Security and industrial policy are drawing investment to data centers and semiconductor manufacturing, while simultaneously stimulating these same areas of investment with the most intense security considerations of the moment, as recorded by UNCTAD, which saw a 73% rise in investment in these sectors in 2024. In these regions, the cross-border acquisition process is now a common occurrence that involves parallel clearance by multiple jurisdictions, including CFIUS, the EU FDI screening regime, and new national regimes in Japan, Australia and the UK, each of which requires its own analysis.
The future of cross-border M&A is not that of a free-ranging globalization in the 1990s and not the complete balkanization that the pessimists fear. It’s in fact a geopolitically divided deal landscape where the nationality of the bidder, the sensitivity of the target and the nature of the relationship between the countries of origin of the bidders will be as important as price and synergy to whether the deal will make it to closing. Those who regard geopolitical risk as a thing to deal with as a consequence of a signing, instead of as a strategic variable up front, will be risking their dealmaking.
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