Amidst rising geopolitical rivalry, President Joe Biden signed an executive order on August 9 to curtail U.S.-based investments in select Chinese technology sectors. The move, while targeted, highlights an intensifying rivalry between the world’s leading superpowers.
The order primarily encompasses advanced computer chips, microelectronics, quantum information technologies, and artificial intelligence. Senior U.S. officials have framed this decision as driven by national security imperatives rather than economic considerations.
The intention is to counter China’s capacity to harness U.S. investments in its tech firms to bolster its military. Simultaneously, the order aims to maintain the broad trade levels essential to the economies of both nations.
The Biden administration has reiterated its commitment to avoid a complete “decoupling” from China. Yet, measures like the retention of tariffs introduced under Trump and the recent curbs on exporting advanced computer chips to China signal an evolving approach.
The President has alluded to a waning Chinese economy. He asserted that China’s global aspirations have diminished due to the revitalization of U.S. alliances with Japan, South Korea, Australia, and the European Union. Biden’s administration sought input from these allies and industry leaders in crafting this executive order.
At a California fundraising event in June, Biden quipped, “Worry about China, but don’t worry about China.”
Officials highlighting the executive order cited concerns over China leveraging U.S. investments to enhance its weaponry and modernize its armed forces. While the restrictions are carefully tailored to ensure China’s economy remains stable, they are perceived as an extension of last year’s export controls on advanced computer chips. These previous controls had garnered significant criticism from Beijing.
The Treasury Department is set to release a proposed rulemaking aligned with the presidential order, allowing for public feedback.
The order’s key objectives include requiring investors to notify the U.S. government about specific transactions involving China and placing outright bans on certain investments. The order mainly targets private equity, venture capital, and joint partnerships. Such investments could offer advanced knowledge and military benefits to countries, including China.
Commenting on the order, J. Philip Ludvigson, a former Treasury official, remarked, “The executive order issued today really represents the start of a conversation between the U.S. government and industry… it explicitly provides for a future broadening to other sectors.”
In July, with a 91-6 vote, the Senate endorsed an amendment to the National Defense Authorization Act, necessitating the monitoring and limitation of investments in countries like China. However, responses to Biden’s recent order varied. Rep. Raja Krishnamoorthi praised the move but felt it shouldn’t be the endpoint. On the other hand, Nikki Haley felt the action should have been more assertive.
Tensions between the U.S. and China continue, with Biden referring to Chinese President Xi Jinping as a “dictator” after a Chinese spy balloon was shot down over U.S. airspace.
China has maintained its support for Russia post the 2022 Ukraine invasion. However, Biden emphasized that such support hasn’t materialized in weapons shipments.
Financial markets await the impact of this order, contemplating whether it signifies a measured step or further escalation. Elaine Dezenski of the Foundation for Defense of Democracies remarked, “Beijing’s so-called ‘national security’ and ‘anti-espionage’ laws… were already having a chilling effect on U.S. foreign direct investment. That chilling now risks turning into a deep freeze.”
China expressed its grave concerns regarding the U.S.’s new stance. Amidst these developments, foreign direct investment in China plummeted by 89% in the year’s second quarter.