In an action viewed as a serious escalation of bilateral tensions, President Joe Biden has issued a long-anticipated executive order limiting certain U.S. investments in China.
When implemented, the order will require companies to notify the U.S. government of investments in some industry sectors, while prohibiting U.S. investments in others. Its goal is to prevent U.S. companies from financing Chinese technology sectors that could have military uses, particularly in quantum computing, advanced semiconductors and artificial intelligence.
This action marks the first time the U.S. has broadly limited outbound investment flows. China responded angrily, with a spokesperson calling it “blatant economic coercion and technological bullying.”
The Treasury Department will be responsible for further delineating and enforcing the order, which begins with a 45-day comment period before draft regulations are published.
With many details left to federal regulators, businesses are expected to actively seek to shape the final rule, with its implementation not expected until the end of this year or into 2024.
Some on Capitol Hill have criticized the order as being too narrow in scope and limited in impact. Congress may attempt to enact stronger restrictions via pending or future legislation.
In the current political environment, competition to protect U.S. national security virtually ensures these rules will be lasting and may be expanded over time.