The Biden administration has put forth new requirements aimed at restricting U.S. investments in critical technology sectors in China due to national security concerns. The U.S. Treasury Department recently announced proposed rules that would impact certain transactions and bans involving U.S. outbound investments in areas like artificial intelligence, quantum computing, semiconductors, and microelectronics technologies.
Assistant Treasury Secretary for Investment Security, Paul Rosen, stated, “This proposed rule advances our national security by preventing certain U.S. investments from supporting the development of sensitive technologies in countries that pose a threat to our national security.” The proposal specifically identifies the People’s Republic of China, including Hong Kong and Macau, as countries of concern for potential restrictions or prohibitions on new U.S. investments.
Under the proposed rules, certain types of investments are outright banned, while others require notification to the treasury. Prohibited transactions include supercomputers, quantum computers, computing components for military purposes, computing tools for intelligence or mass surveillance, and AI tools for sequencing biological data.
Notifiable transactions involve designing and producing integrated circuits, as well as AI systems for specific surveillance and cybersecurity purposes. Failure to disclose notifiable transactions or engage in prohibited transactions under the proposed rules could result in penalties under the International Emergency Economic Powers Act, including fines of up to $1 million and potential prison sentences of up to 20 years.
President Biden initiated a comment period on these proposed rules through an executive order last August. The Treasury Department is now seeking feedback on the proposal, with a deadline of August 4th, before finalizing the rule.
Rising Concerns
These proposed rules come at a time of increasing worries in the U.S. about potential military advantages that the Chinese regime could gain through activities like intellectual property theft, espionage, cyber exploitation, forced technology transfers, and influence campaigns targeting American technology firms, government entities, and military facilities.
A 2018 report from the Office of the U.S. Trade Representative estimated that the U.S. loses between $225 billion and $600 billion annually in intellectual property value due to theft by Chinese actors and the Chinese government.
In response to these concerns, a bipartisan group of U.S. Senators introduced legislation to increase transparency regarding efforts to combat Chinese intellectual property theft and forced technology transfers. Additionally, the Biden administration recently ordered a China-linked cryptocurrency mining company to divest its land near a U.S. military base, citing concerns about potential Chinese intelligence gathering activities.
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