Collateral Damage: What about the Casualties of the Geoeconomic Turn?
At the beginning of this year, the government of the United States completed its outbound screening regime, adopting the final rule to implement Executive Order 14105 of 9 August 2023 (the Outbound Order).[1] The Outbound Order focuses on three key technology areas: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. In an Annex, it also identifies the countries of concern (i.e. China, Hong Kong, Macau), whose use of these technologies may lead to powerful new applications that pose serious national security risks for the US. These include more advanced weapons systems, the ability to break encryption, and other tools that could give countries of concern a military edge.
The line separating military and civilian technologies is becoming increasingly blurred. Advanced technologies with an increased potential for dual-use are developed and financed by the private sector (granted, with some industrial policy action on the part of states). Governments are recognising the risks that this development poses, as demonstrated by the Outbound Order, and the steps the European Union is taking to adopt an outbound investment review regime of its own.[2] Outbound investment review mechanisms are complemented by other tools of economic security, such as export controls and inbound investment screening, in a period that some scholars and commentators call the geoeconomic turn.
Nvidia, a company that dubs itself as the Engine of AI, is likely the most seasoned in navigating and implementing the regulations that emerged in the geoeconomic turn. Export controls in place since 2022––and which have since been tightened periodically––have severely affected Nvidia’s business with Chinese companies. The company now appears to be seeking new ways to side-step export controls. The long-time chief executive of Nvidia Mr. Jensen Huang was recently on a visit to China, where he reiterated the company’s commitment to serve the Chinese market. It was later reported in the press that Nvidia was seeking to build a research and development centre in Shanghai.
To call the business of semiconductors highly complex is an understatement. There are only a handful of companies that are capable of producing cutting edge chips. Nvidia works with these companies, outsourcing the manufacturing of the hardware that it designs. Nvidia’s planned venture in China would reportedly work on projects such as “verification of chip designs, optimisation of existing products and sector focus research such as autonomous driving”. According to the press report, Nvidia said: “We are not sending any GPU designs to China to be modified to comply with export controls.” But it is not export controls that Nvidia will have to worry about this time around. If and when Nvidia decides to move forward with this project, it will likely have to notify it to the Secretary of Treasury to seek approval under the Outbound Order.
While a negative decision by the authorities may be merely a setback for a company such as Nvidia, it is worth considering the impact such restrictions might have on a company pushed into distress—or even bankruptcy—as a result. The concerted use of investment screening and export controls may leave companies in a very difficult situation.
Where does the geoeconomic turn leave companies in distress?
Suppose a company produces widgets the large majority of which is bought by customers based in a specific country. In the geoeconomic turn, the company is considered to be engaged in strategic economic activity, and the country where its customers are based is a country of concern. Consequently, the company’s widget exports are hit with restrictions. The company considers that it could side-step export restrictions by relocating production to the country where the majority of its customers are based. This is where outbound screening steps in, and the company’s plans for relocation are foiled.
In the discussions around the use of geoeconomic tools, there is one question that appears to remain unsolved. Scholars have already considered various remedies for losses incurred as a result of the use of investment screening––via investment arbitration, for example. But this avenue is only open for certain companies. Many others fall through the cracks.
Protection begets protectionism
In the geoeconomic age, business is not just business. Companies are given a geostrategic role, whether they want it or not. At the end of the day, what is at stake is national security: they suffer what they must. But the protection of national security may cost some companies dearly, as outlined above. The question is: how will these losses be compensated?
The geoeconomic turn has mostly resulted in regulations that tend to restrict or prohibit business activities. These may be called negative regulations and viewed as instruments to protect national security. However, it is my conviction that these negative regulations will have to be counterbalanced by positive regulations to alleviate the adverse effects of the former. To put it simply: if a company is of strategic importance, does the state have an obligation to protect and maintain its functioning? Does the state at least have an obligation to offset the losses incurred as a result of the restrictions it imposed? The protection of national security begets a certain amount of economic protectionism. The companies that are given a geostrategic function may legitimately expect compensation for being assigned this public role.
In the geoeconomic turn, states have already started to reorder their funding schemes, shifting industrial policy towards strategic sectors. It may be worth adding to this industrial policy further schemes that deal with the losers of the geoeconomic turn. What such industrial policy should look like is a matter worth exploring.
*Bálint Kovács, PhD is a lecturer in international economic law at the University of Szeged and a senior researcher at the Ferenc Mádl Institute of Comparative Law, in Hungary. He is also CELIS Assistant Country Reporter for Hungary.
[1] Executive Order 14105 (88 FR 54867) of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern”.
[2] Commission Recommendation (EU) 2025/63 of 15 January 2025 on reviewing outbound investments in technology areas critical for the economic security of the Union, C/2025/39, published in OJ L 2025/63 of 15.1.2025.
