President Joe Biden on Aug. 9 signed an executive order to begin the process of restricting high-tech U.S.-based investments going toward China in the areas of artificial intelligence, quantum technology, and semiconductors.
The executive order, which is likely to take effect next year following a comment period, will authorize the Treasury secretary to regulate U.S. investments into Chinese technologies deemed to affect national security, according to senior administration officials.
The president, in the order, declared a national emergency in relation to the “unusual and extraordinary threat” posed by “countries of concern” that are using sensitive technologies to advance their military and intelligence capabilities. It added that U.S. investments “risk exacerbating this threat.”
“The Biden administration is committed to keeping America safe and defending America’s national security,” one official said in an Aug. 9 press call. “That includes appropriately protecting technologies that are critical to the next generation of military innovation.
“[China] has a stated goal to acquire and produce key sensitive technologies that directly support [its] military modernization-related activities such as weapons development, and has exploited U.S. investments to develop domestic military and intelligence capabilities.”
The official said that the new executive order will target a “narrow subset” of investments in AI, quantum information technologies, and semiconductors and microelectronics to fill a “critical gap” in national security.
“This is a national security action, not an economic one,” the official said.
“This executive order protects our national security interests in a narrowly targeted manner, while maintaining our longstanding commitment to open investment.”
In coordination with the president’s order, the official said, the Treasury Department will move to simultaneously release an advance notice for new proposed rules that would prohibit investment in entities that engage in activities related to the three domains and require notification of investments into related technologies.
Though the Treasury still must go through a potentially lengthy rule-making process to give notice and receive comments on its proposed rules, administration officials are hopeful that a strong bipartisan desire in Congress to “meaningfully regulate outbound investments” will help to craft the most robust mechanisms possible.
With that being said, the official noted that the United States would not pursue any form of decoupling from China, instead describing its moves as “de-risking.”
“We are pursuing a policy of de-risking with regard to [China], by taking targeted national security actions,” the official said. “[We are] not decoupling our economies, and this policy reflects that approach.”
The official added that the Treasury’s proposed rules were made in coordination with the nation’s allies and partners through dozens of meetings, and will help to demonstrate “unity of purpose” on the international stage.
Preventing Flow to CCP’s Military
The rules will focus in part on giving the administration better tools for preventing U.S. private equity and venture capital from flowing to Chinese entities that might provide an “edge” to the regime’s military.
U.S. tech companies and venture capital firms have long invested in entities associated with the military wing of the Chinese Communist Party (CCP), with little interference from the federal government.
To that end, the bipartisan House Select Committee on the CCP is opening investigations into several U.S. venture capital firms that it claims are funding China’s development of AI and spurring its military modernization.
In a letter announcing the probes, committee chairman Mike Gallagher (R-Wis.) and ranking Democrat Raja Krishnamoorthi (D-Ill.) said that the CCP is actively working to hone its military edge through U.S. research and investments.
“[China] is actively seeking out and using advancements in AI to perpetrate human rights abuses and enhance its military capabilities,” the letter states. “It is likewise using advancements in quantum computing and semiconductor manufacturing to support the People’s Liberation Army (PLA).”
The regime is also stealing critical technologies including AI and quantum cryptography systems, which will have crucial military importance in the coming years, according to U.S. Ambassador to China Nicholas Burns.
“[Technology] is in many ways the heart of the competition,” Burns said at a June meeting of the Global Leadership Coalition.
“All of those technologies are going to be militarized.”
Mr. Burns added that the CCP, which rules China as a single-party state, is engaged in the “consistent and persistent theft of intellectual property” to accelerate “forced technology transfer” from the United States.
That malign influence, he said, is making it difficult for the United States and the CCP to peacefully compete, and will have ramifications for U.S. security in the region both in the near and long terms.
US Seeks Non-Military Deterrence
The executive order comes as an increasing number of analysts and experts urge that Congress and the executive branch must better augment the nation’s ability to deter conflict with China through non-military means.
To prevent a war between the great powers, according to retired Rear Adm. Mike Studeman, the United States will need to go beyond investing in military equipment and leverage all means of national power.
“We need to be looking at all forms of influence that will prevent a combat environment or a crisis that will, in fact, be devastating for the globe,” Mr. Studeman said during an Aug. 8 talk at the Hudson Institute, a conservative think tank.
The order also follows yet another trying week for the already fraught U.S.–China relationship, as Chinese and Russian warships conducted their largest-ever joint naval operation near the coast of Alaska.
Eleven Chinese and Russian vessels sailed through international waters near the coast of Alaska, drawing an escort of four U.S. destroyers to ensure that the forces didn’t enter U.S. territorial waters.
Though the scale of the exercise is new, the incident is not—in and of itself—unusual. A similar, smaller drill took place in September of 2022, involving three Chinese and four Russian naval vessels. The United States responded at that time by dispatching a single Coast Guard vessel.