Biden signs order barring US investment in Chinese chips, quantum computing and AI sectors

President Joe Biden has issued an executive order barring US citizens, permanent residents and corporations from financial transactions involving Chinese and Chinese-owned technology companies working on semiconductors, quantum computing, and artificial intelligence.

The order, which was announced by the White House on Wednesday, bars “US persons” from “undertaking particular transactions involving certain entities located in or subject to the jurisdiction of a country of concern, and certain other entities owned by persons of a country of concern, engaged in activities related to defined sub- sets of technologies and products,” and requires notification to the US Treasury by anyone undertaking certain permitted transactions pertaining to entities “engaged in activities related to other defined technologies and products”.

Mr Biden said in the order that he had officially found that “countries of concern” are currently “engaged in comprehensive, long-term strategies that direct, facilitate, or otherwise support advancements in sensitive technologies and products that are critical to such countries’ military, intelligence, surveillance, or cyber-enabled capabilities”.

He also noted that the countries at issue “eliminate barriers between civilian and commercial sectors and military and defense industrial sectors, not just through research and development, but also by acquiring and diverting the world’s cutting-edge technologies, for the purposes of achieving military dominance”.

In a separate annex to the executive order, Mr Biden designated China and the “Special Administrative Regions” of Hong Kong and Macau as a “country of concern”.

The president’s order lays out three specific categories of technologies that will be subject to the new restrictions, which were chosen based on their “critical role in accelerating the development of advanced military, intelligence, surveillance, and cyber-enabled capabilities”.

“Advancements in sensitive technologies and products in these sectors will accelerate the development of advanced computational capabilities that will enable new applications that pose significant national security risks, such as the development of more sophisticated weapons systems, breaking of cryptographic codes, and other applications that could provide these countries with military advantages,” Mr Biden said. He added that he was declaring a new national emergency to deal with the threat posed by US investments in those technologies being taken advantage of by China, allowing him to use the International Emergency Economic Powers Act to impose the new restrictions laid out in the order.

Those technology categories will include semiconductors and microelectronics, quantum information technologies, and artificial intelligence systems.

Mr Biden’s order also instructs Treasury Secretary Janet Yellen to “further define sensitive technologies and products” in the categories that will be subject to the investment ban and notification requirements in consultation with other departments and agencies.

Separately, the Treasury Department announced a new administrative rule-making proceeding and asked the public for comments on the regulations Ms Yellen will promulgate under the new executive order.

In a statement accompanying the notice of proposed rule-making, the Treasury Department said the administration is “committed to keeping America safe and defending America’s national security through appropriately protecting technologies that are critical to the next generation of military innovation”.

The department added that the new “narrowly targeted” rules will “complement our existing export control and inbound investment screening tools, and protect our national security while maintaining our longstanding commitment to open investment”.

According to a Treasury fact sheet, the new program will be “narrowly targeted at investments in highly sensitive technologies and products for the purposes of protecting US national security,” and will likely include exceptions for “publicly-traded instruments and intracompany transfers from U.S. parents to subsidiaries”.

The new rules come after calls from members of Congress in both parties for a crackdown on American investment in the Chinese technology sector, citing policies that require companies operating in China to aid the Chinese military when ordered to by state officials.

The restrictions are likely to trigger a negative response from Chinese officials who have bristled at Mr Biden’s simultaneous efforts to bring semiconductor manufacturing back to the United States and boost American investment in artificial intelligence and other advanced technologies with military potential.

Speaking in New Mexico on Wednesday to mark the anniversary of the semiconductor manufacturing funding bill he signed into law last year, Mr Biden boasted of $230 billion in investments made with the aim of helping companies onshore production of semiconductor products that are essential to key US industries and the defence sector.