President Biden on Wednesday signed an executive order banning American investments in certain technologies in China, marking a significant escalation in the economic war against Beijing.
The order prohibits American venture capital and private equity firms from investing in three technology sectors in China: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems.
The order restricting investment in China has been years in the making, as Biden administration officials had been at odds on how far the executive action should go.
A Biden administration official said the order also creates an outbound screening mechanism. The restrictions are being put in place under the guise of national security, and US officials insist they are not trying to hurt economically, only prevent China’s military from gaining access to US technology.
But that’s not how Beijing views the restrictions and other sanctions the US has placed on China’s semiconductor industry. While the administration is trying to tone down its rhetoric, Commerce Secretary Gina Raimondo has previously said that the US wants to work with other countries to “slow down China’s rate of innovation.”
China is likely to respond to Biden’s order in some way as it has previous economic measures. After the US convinced the Netherlands and Japan to join in on sanctions restricting China’s access to technology needed to make advanced semiconductors, Beijing banned products from the US memory chip maker Micron.
While the Micron ban was clearly a response to US sanctions, Raimondo blasted Beijing for the move, calling it “economic coercion.” More recently, China has restricted the export of gallium, a metal widely used in advanced microelectronics.
Biden’s new order comes as US-China relations are at their lowest point since normalizing relations in 1979. Some ultra-China hawks in Congress are calling for cutting off all trade with China, which would likely take decades to achieve and would make war between the two powers much more likely.