The Biden administration is considering measures to limit U.S. investment in key Chinese technology sectors critical to the modernization of China’s military capabilities.


Draft regulations from the Treasury Department would ban specific U.S. investments in Chinese companies focused on developing semiconductors, quantum computing, and artificial intelligence. The administration aims to prevent American capital from advancing technologies in China that could enhance weapon tracking, intelligence gathering, and surveillance capabilities, according to The New York Times.


If implemented, these measures would further strain economic relations with Beijing amid escalating trade tensions. The proposed regulations are expected to be finalized later this year.


“This proposed rule advances our national security by preventing the benefits certain U.S. investments provide — beyond just capital — from supporting the development of sensitive technologies in countries that may use them to threaten our national security,” said Paul Rosen, the Treasury Department’s assistant secretary for investment security, as reported by The New York Times.


Earlier, President Biden signed an executive order initiating the investment ban, primarily impacting venture capital and private equity firms that engage with Chinese enterprises.


The proposed restrictions would require investors to notify the Treasury Department about certain types of transactions, while outright prohibiting others. The Treasury Department would have the authority to enforce divestment, with violations potentially referred to the Justice Department for criminal prosecution.


These rules would apply to equity investments, convertible debt financing, and joint ventures.


In May, President Biden instructed his Trade Representative to increase tariffs on $18 billion worth of Chinese imports, including semiconductors, solar cells, batteries, and critical minerals, to protect American workers and businesses, according to a White House statement.


The White House cited China’s unfair trade practices as the impetus for these increased tariffs. “China's unfair trade practices concerning technology transfer, intellectual property, and innovation are threatening American businesses and workers. China is also flooding global markets with artificially low-priced exports,” the statement read.


The tariffs under Section 301 of the Trade Act of 1974 aim to counteract the detrimental effects of China’s policies. “China's forced technology transfers and intellectual property theft have led to its dominance in global production for critical inputs necessary for our technologies, infrastructure, energy, and health care, creating unacceptable risks to America's supply chains and economic security,” the White House stated.