The U.S. government is nearing the final stages of reviewing new rules that will place significant restrictions on U.S. investments in artificial intelligence (AI) and other sensitive technologies in China.
These measures are part of a broader strategy to prevent American capital and expertise from bolstering China’s military capabilities, particularly in cutting-edge fields like AI, semiconductors, microelectronics, and quantum computing. The restrictions, currently under final review, are expected to be released soon, as indicated by a government notice.
These rules, which come from an executive order signed by President Joe Biden in August 2023, signal a major shift in U.S. policy regarding outbound investment to China, particularly in high-tech sectors that could have both civilian and military applications, NDTV
The primary goal of the upcoming rules is to restrict U.S. investments in technologies that could enhance China’s military capabilities. The targeted sectors include artificial intelligence, advanced semiconductors, microelectronics, and quantum computing, which are critical for national security and defense.
Once finalized, these regulations will require U.S. investors to notify the Treasury Department of any planned investments in these sensitive areas. The rules also introduce outright bans on specific investments that are deemed particularly risky to U.S. security interests, such as AI systems designed for military applications.
The current version of the rules is undergoing review by the Office of Management and Budget (OMB), a sign that they are in the final stages before implementation. This review process typically signals that the rules will be released soon—likely within the next week or so.
The timing of the rule’s finalization is critical, with many experts predicting that the government is aiming to publish the regulations before the U.S. presidential election on November 5, 2024. Laura Black, a former Treasury official and a lawyer at Akin Gump, suggested that the timing may be politically motivated, as the Biden administration looks to solidify its tough stance on China before voters head to the polls.
READ ALSO: Euro Could Fall 10% Amid Trump’s Tariff and Tax Cut Policies, Goldman Sachs
Once released, the rules will not take effect immediately. Black pointed out that the Treasury Department usually provides a 30-day window before such regulations are officially enforced, giving businesses and investors some time to adjust to the new guidelines, US News.
The Treasury Department first introduced the proposed rules in June 2024, outlining the types of investments that would be restricted and providing some exceptions. U.S. individuals and companies would be responsible for determining whether their transactions fall under the scope of the restrictions. While this might seem straightforward, the complexity of AI and related technologies means that many investors will need to exercise considerable caution and seek expert guidance.
The initial draft of the rules included certain exceptions aimed at balancing national security concerns with the need to avoid disrupting legitimate commercial activity. For example, publicly traded securities, such as index funds and mutual funds, were exempt from the restrictions, as were certain limited partnership investments and syndicated debt financings.
However, the rules were far from comprehensive in their coverage. They primarily focused on AI systems for specific uses and applications, particularly those involving a defined quantity of computing power. These restrictions target AI technologies that could be used for military purposes or could give China a strategic advantage in developing advanced autonomous systems.
The proposed rules also required notification of investments in AI and semiconductor development that fell just short of outright bans. This approach allows the U.S. government to monitor and potentially act on transactions that, while not immediately restricted, could still pose a threat to national security.
As the final version of the rules approaches, industry experts anticipate that they will provide more detailed guidance on several key areas. One of the most critical aspects is the scope of coverage over AI technologies, which remains somewhat ambiguous in the proposed rules. Investors are also seeking clarity on the thresholds for limited partners and the kinds of AI systems that will fall under the regulations.
Additionally, the final rules are expected to refine the conditions under which transactions will require notification to the Treasury Department. These notifications will serve as a way for the U.S. government to keep track of sensitive investments, even in cases where an outright ban does not apply.
This will likely create additional compliance burdens for U.S. investors, who will need to navigate a complex web of regulations when dealing with AI and other high-tech sectors in China.
Given the rapid development of AI technologies, the Biden administration’s efforts to regulate outbound investment in this space reflect growing concerns about the potential for dual-use technologies—those that have both civilian and military applications, Reuters.
AI, semiconductors, and quantum computing are all areas where the U.S. and China are locked in fierce competition, and the U.S. government is keen to ensure that American know-how and financial resources do not inadvertently contribute to China’s military advancements.
READ ALSO: Hezbollah Launches Rocket Barrage into Israel as Blinken Returns to Push for Ceasefire
The new restrictions on U.S. investments in China come amid heightened tensions between the two global powers. Over the past few years, both nations have been locked in an increasingly intense rivalry, with trade disputes, military posturing, and diplomatic friction becoming regular features of their relationship. The Biden administration has continued to maintain a tough stance on China, particularly in areas related to national security and technological competition.
These new investment rules are likely to strain U.S.-China relations further, as they represent a direct attempt to limit China’s access to advanced technologies that could enhance its military capabilities. China has already voiced its displeasure with previous U.S. sanctions and restrictions, and these new measures will likely be met with similar criticism.
At the same time, the rules are a reflection of the U.S. government’s broader strategy to maintain its technological edge in critical sectors. By curbing outbound investment in AI, semiconductors, and quantum computing, the U.S. is looking to preserve its leadership in these fields while preventing China from catching up or surpassing it in terms of military applications.
The upcoming restrictions on U.S. investments in China mark a significant development in the Biden administration’s broader strategy of “decoupling” from China in areas of national security and advanced technology. These rules, once finalized, will place new responsibilities on U.S. investors and companies, who will need to navigate an increasingly complex regulatory landscape.
As the U.S. seeks to maintain its competitive edge in AI and other high-tech sectors, these new regulations are a clear signal that Washington is serious about limiting China’s access to critical technologies. While the impact of these rules will unfold over time, they are likely to shape the future of U.S.-China relations for years to come.