President Biden’s Aug. 9, 2023 executive order declared that China’s pursuit of “the world’s cutting-edge technologies” to be a national emergency. The Chinese Communist Party is developing technologies in civilian, commercial settings and then applying them for military purposes to “threaten the national security of the United States,” the order warned.
Regrettably, this national emergency has been financed by American capital and advanced by American know-how.
Biden’s order resulted in the Treasury Department’s new outbound investment rules, issued Oct. 28, 2024. And although Biden deserves credit for defining the emergency, Treasury’s response is the equivalent of putting a band aid on an arterial bleed. Congress and President-elect Trump must square up to a national emergency of our own making and deliver comprehensive solutions.
Beijing exploits civilian, commercial activities such as international academic collaborations, Western management consulting engagements, and foreign investment in China in order to develop its military, which is designed to defeat the U.S. in a war. These settings confer access to American dual-use technology from additive manufacturing and advanced materials to robotics and space.
Curiously, Biden’s executive order directs the Treasury secretary to only partially address the investment side of the problem, leaving the academic and consulting dimensions unaddressed. Indeed, the most obvious indictment of the final rule is that it complies with what multiple Chinese state-backed organizations and front groups successfully lobbied for during the Treasury Department’s deliberations.
Treasury’s new rules put light restrictions on U.S. investment in three areas: Chinese advanced semiconductors, artificial intelligence and quantum technologies. When Treasury solicited public input on its response to the president’s executive order, both the China Chamber of International Commerce and the China Council for International Investment Promotion complained that any kind of restriction on investment would compromise the “shared interests of the global business community” and “the security of global industrial and supply chains.” Without offering evidence, they denied that China is exploiting the crossover between civilian commercial know-how and military technology to advance the People’s Liberation Army. Their hollow objections only confirm the assessment.
Similarly, two U.S.-based China-linked academic non-profit institutions answered the call for comments with pleas for universities to be excluded. The two institutions were the Optical Society of America, known as Optica, based in Washington, and Eastern Michigan University, a public, space-grant research university in Ypsilanti, Mich. Several months after Optica submitted its comments, Bloomberg revealed that it had been taking money from Huawei, the Chinese telecommunications firm that has been under U.S. government sanctions since 2019.
Eastern Michigan, meanwhile, has received nearly $2 million in gifts and contracts from China-based entities since 2021. Part of that total relates to a partnership with Beibu Gulf University, an engineering school boasting an “industry-university-research” program that, according to Chinese sources, is the Chinese Communist Party’s new model of military-civil fusion.
Treasury has now at least begun to limit U.S. investment in the three selected areas, but the new rules, released last month and set to go into effect a few weeks before President-elect Trump’s inauguration, only ban private — i.e., venture-capital and private-equity — investment over $2 million and corporate investment in certain subsets of semiconductor-, AI-, and quantum-related technologies.
The new rules do not limit investment in public securities, which account for the majority of U.S. investment in China. Trump and Congress need to rectify this omission, which will admittedly impose a burden on investors already highly exposed to dual-use Chinese AI companies, from Alibaba to Tencent.
In addition, the new administration should work with Congress to curtail transactions in other technologies. Since advanced manufacturing and materials, biotech, new energy, robotics and space — to a name a few of the fields prioritized by Beijing — are as dual-use as semiconductors, AI, and quantum, transactions in these areas should be restricted as well.
Finally, because China exploits not just commercial investment but also academic collaborations and consulting engagements with Western institutions, these activities should be banned too.
All of this indicates that the Biden administration left plenty of work undone in its response to the executive order. A national emergency demands concerted effort, and it now falls to President-elect Trump and Congress to counter the multi-faceted threat that was described by President Biden but scarcely addressed in the limited response mustered by his Treasury Department.
One test for Congress to use: new laws should include the full range of measures that Beijing has been lobbying against, from restrictions on all kinds of outbound capital flows to limits on consulting and academic partnerships, as these are the steps that the United States needs to take to protect itself from the Chinese Communist Party’s long-term, comprehensive strategy to use American technology against the United States.
Jacqueline Deal, Ph.D., is a member of the Advisory Board of State Armor.
News Summary:
- Trump, Congress must fix the national emergency that Biden declared
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