May 25, 2023 - World

Biden's next move to box China out on sensitive tech

Biden and Xi during a virtual summit in 2021. Photo: Mandel Ngan/AFP via Getty

The Biden administration is working to finalize an executive order to restrict outbound investments in China’s defense industry, aiming to release it later this summer, according to two sources familiar with the matter.

Why it matters: The proposed regulations represent a novel approach by the Biden administration to prevent China from gaining a military advantage in certain targeted technologies. But new regulations are always complicated, and the administration wants to avoid unintended consequences and uncertainty for U.S. investors.

  • Biden officials, especially at the Treasury Department, have worked to convince European and G7 allies of the need to coordinate their efforts, which has slowed down the release of the U.S. executive order.
  • At the G7 summit in Japan, clear progress was made on the international front, a senior administration official told Axios.
  • A White House spokesperson declined to comment on the precise timing of the executive order.

What they're saying: "While each of the G7 countries may not act on the same timeline and in the exact same way, vis-a-vis outbound, I think there was a shared assessment of the challenge we face," the senior administration official told Axios.

  • There was also "a shared assessment that outbound investment tools are an important part of the toolkit that we all need," and that all G7 members must ultimately "act in common," the official said.

Driving the news: At the conclusion of the G7 summit, leaders agreed that some of China’s economic practices presented a risk to the global economy and pledged to “de-risk” from China.

  • “We’re not looking to decouple from China, we’re looking to de-risk and diversify our relationship with China,” President Biden said.
  • Beijing accused the G7 of holding an "anti-China" summit and summoned Japan's ambassador.

The big picture: The Biden administration hasn’t been shy about pursuing policies tied to competition with China on critical technologies.

  • In October, the Commerce Department announced new export controls on semiconductor technologies as a way to slow China’s military development.

The intrigue: Administration officials, including Paul Rosen, the assistant secretary of investment security at Treasury, have been soliciting feedback from think tanks and investment firms as they work to calibrate the executive order.

  • Those conversations have fueled speculation all year that an announcement was imminent.
  • But officials don’t feel intense pressure to release the executive order by a set date, according to the sources familiar with the matter.
  • They do feel pressure to get the policy — the first of its kind — right, and to make sure the rules are easily understood and enforceable. That has led to a more targeted approach, with the order focused on the semiconductor, artificial intelligence and quantum computing industries, the sources say.

The latest: Rep. Patrick McHenry (R-NC), chair of the House Financial Services Committee, sent a letter to Treasury Secretary Janet Yellen expressing skepticism that the executive order would be effective and requesting more information, Reuters reported Thursday.

State of play: China-U.S. relations have been on a downward trajectory since a Chinese spy balloon floated across U.S. airspace in February.

  • Plans for high-level visits to China from by Secretary of State Tony Blinken and Treasury Secretary Janet Yellen are still on hold. But Biden said at the G7 that he's expecting a "thaw" soon.
  • This week, the two sides have an opportunity to improve relations, with Commerce Secretary Gina Raimondo meeting with her Chinese counterpart in Washington Thursday night.
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