President Biden Has Banned Some U.S. Investment in China. Here’s What to Know.

Now, U.S. policymakers are increasingly worried about China’s growing military power. Analysts have long warned that China’s Communist Party pressures foreign investors to share intellectual property. “Dual-use” technologies, which serve both commercial and military needs, bring particular danger. “It’s the blurred nature between private- and state-owned, between civilian use and commercial use versus military use, that increases risk from American policymakers’ perspective,” says CFR’s Maurice R. Greenberg fellow for China Studies, Zongyuan Zoe Liu. These concerns led Biden to declare a national emergency alongside the executive order, citing “an unusual and extraordinary threat to the national security of the United States” in a letter to Congress. 

The Biden administration has stressed that it intends to narrowly tailor restrictions to prevent China’s military advancement and protect U.S. national security, not cause China economic harm. Biden administration officials call this strategy “de-risking,” as opposed to “decoupling,” or the wider separation of the U.S. and Chinese economies. 

How Is China Responding?
China’s foreign ministry called the controls “technological bullying,” but Beijing is yet to retaliate. Responding to previous U.S. restrictions, China blocked mergers between Chinese and U.S. semiconductor firms, banned U.S. chipmaker Micron Technology from certain infrastructure projects, and restricted exports of critical minerals used in advanced chips. 

However, as China confronts an economic downturn, some experts say its options for retaliation could be limited. “Beijing has few options to respond to the new U.S. actions without inflicting collateral damage on its own economy,” writes Paul Haenle, the Maurice R. Greenberg director’s chair at the Carnegie Endowment for International Peace.

Meanwhile, scheduled diplomacy between the countries continues. Weeks after Biden announced the restrictions, Commerce Secretary Raimondo met with Chinese officials in Beijing. On the trip, Raimondo said there was “no room” to negotiate on national security, but argued that the U.S.-China trade relationship could hold the keys to political stability. In addition to those talks, Chinese President Xi Jinping could meet with Biden in November at the Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit in San Francisco, U.S. policymakers say.

How Are U.S. Allies Responding?
Biden reportedly discussed his plans with other Group of Seven (G7) leaders at the group’s May summit in Hiroshima, Japan, though they are yet to announce similar restrictions. However, Germany, the United Kingdom, and the European Union (EU) are all said to be considering their own outbound screening regimes. In June, the European Commission announced it would propose such measures by the end of 2023. That would come amid ongoing change in the European outlook toward Chinese investment; for years the EU sought a close economic relationship with Beijing, including by pursuing a now-defunct EU-China investment deal, but it has since officially embraced de-risking. 

Are More Restrictions Coming?
Biden administration officials speak of maintaining a “small yard with a high fence” when it comes to protecting technologies critical to U.S. national security. Still, lawmakers are signaling an appetite to expand the restrictions’ ambit. Some have proposed broadening outbound investment screening to include industries such as advanced aviation, biotechnology, energy, and additional countries, such as Cuba, Iran, North Korea, Russia, and Venezuela. Others go further, calling for a more complete decoupling. Meanwhile, some skeptics argue that by eliminating access to foreign know-how, these restrictions could accelerate China’s self-sufficiency in developing its critical technology sector. 

Many experts say that an overly broad screening regime would harm U.S. interests and skew toward unnecessarily protectionist policies. “As long as that yard remains small and focused on the critical national security technologies, I think we’re on very firm ground,” CFR President Mike Froman said on CNBC. 

Noah Berman is Assistant Writer/Editor, Economics, at CFR. This article is published courtesy of the Council on Foreign Relations (CFR).